■'X'Xv.v.vX' '-* ' 


JV^ 


;iTY  OF  CALIFORN 
LOS  ANGELES 


THE  GIFT  OF 

MAY  TREAT  MORRISON 

IN  MEMORY  OF 

ALEXANDER  F  MORRISON 


THE  PLAIN  FACTS 

AS  TO 

THE  TRUSTS  AND  THE  TARIFF 


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THE  PLAIN  FACTS  AS  TO 

THE  TRUSTS  and  THE  TARIFF 

WITH   CHAPTERS    pN 

The  Railroad  Problem  and  Municipal  Monopolies 

BY 

GEORGE  L.  BOLEN 


Neto  Yorfe : 
THE   MACMILLAN   COMPANY 

LONDON:  MACMILLAN  &  CO..  Ltd. 
1902 


COPTKIGMT,   190a,   BT 

THE   MACMILLAN   COMPANY. 
Set  up  and  electrotyped  June,  1902. 


^5  p 


6 


PREFACE. 

This  book  is  written  with  the  belief  that  there  is  no 

sufficient  reason  why  sound  knowledge  of  the  trusts  and 

the  tariff  should  continue  to  be  confined  so  narrowly  to 

the  few.     To  understand   these,  which,  with  connected 

topics,  are  the  most  important  questions  of  the  day  — 

political,  economic,  and  social  —  the  average  man  of  some 

education  does  not  seem  to  lack  capacity.     The  merchant, 

Pi      the   wage  worker,   or  the  farmer,   discerns  keenly  the 

jv      slightest  change  for  better  or  worse  in  the  conditions  by 

cc     which  he  is  directly  affected.     Could  he  not  carry  his 

^      thinking  to  causes  further  back — to  conditions  that  affect 

him  less  closely  ?     When  evil,  the  former  conditions,  such 

g     as  an  ordinary  fall  in  wages  or  profits,  are  temporary,  and 

'2.     can  be  improved,  by  moving  or  by  varying  one's  effort ;  but 

(K     the  latter  conditions,  after  a  lapse  of  time  not  very  long,  as 

'     when  changing  methods  gradually  take  away  a  person's 

occupation,  are  of  momentous  permanence,  and  when  not 

^     foreseen   may  hold  him  down  inexorably.     Among  the 

flc     socially  beneficent  changes  of  the  latter  class  are  others, 

continually  approaching,  which  are  portentous  to  all,  and 

o     which  are  only  to  be  prevented  by  timely  action  from 

£     the  many. 

Not  only  ou^^/it  the  average  man  to  carry  his  thinking 
further,  to  become  more  intelligent  in  citizenship  and 
more  capable  in  business,  but  it  seems  that  he  desires  to 
do  so.  As  far  as  leisure  permits,  he  reads  the  mass  of 
matter  placed  before  him,  and  with  an  intention  to  know, 
as  well  as  to  be  entertained.     Is  not  his  lack  of  economic 


vi  Preface. 

knowledge  due  chiefly  to  the  fact  that  it  is  not  served  to 
him  ?  That  which  he  gets  is  too  often  a  one-sided  view 
from  partisan  sources  ;  and  when  it  comes  from  the  ablest 
and  fairest  writers,  it  requires  too  much  study,  and  too 
much  previous  information,  to  be  generally  appreciated. 

The  attempt  in  this  book,  therefore,  is  to  gather  up 
and  convey  to  the  general  reader,  busy  with  every-day 
affairs,  a  considerable  measure  of  that  deeper  economic 
and  political  knowledge  which  is  usually  confined  to 
men  of  special  education  or  experience.  Both  sides  of  a 
question  are  presented,  but  only  so  far  as  the  truth  seems 
to  demand,  not  with  effort  to  say  as  much  for  one  side  as 
for  the  other.  For  the  views  presented,  it  is  hoped 
that  the  reasons  given  will  be  sufficient  evidence  of 
soundness.  The  object  is  to  enable  the  reader  to  un- 
derstand so  easily  and  clearly  that  he  will  not  rely 
blindly  on  platforms  and  speakers. 

The  authorities  mainly  followed,  it  will  be  seen  from 
the  foot-notes,  are  men  of  established  leadership,  who 
have  written  within  close  view  of  American  conditions  as 
they  exist  to-day.  The  list  of  books  cited  is  given  to 
avoid  printing  full  titles  in  the  notes.  Most  of  the  sta- 
tistics are  taken  from  government  reports,  and  cur- 
rent facts  from  the  reliable  periodicals  cited.  Some  ad- 
ditional facts  for  Part  I.  are  inserted  on  its  closing  page, 
and  a  few  similar  additions  will  be  noticed  near  the 
close  of  Part  II.  The  matter  was  chiefly  written  last 
fall  and  winter,  and  proofs  of  the  pages  in  type  have 
been  finally  revised  during  the  last  two  months. 

George  L.  Bolen. 

Jackson,  Mich.,  June  2,  1902. 


CONTENTS. 


Part  I. 


The  Plain  Facts  as  to  the  Trusts. 

Chapter.  Page. 

I.  Origin  and  Purposes         ......         3 

II.   Possibilities  for  Good  and  for  Evil     .         .         .         .17 

III.  Kinds  of  Monopolies         ..*...       38 

IV,  The  Railroad  Problem 44 

V.  Municipal  Monopolies       .         .         .         .         .         •91 

VI.  Remedies  for  the  Evils  of  Trust  Monopolies       .  .112 

VII.  The  Proper  and  Necessary  Measure  of  Monopoly  .     160 

VIII.  The  Evil  of  Railroad  Competition     .         .         .  .190 

IX.  The  Trusts  and  the  Future  of  Society         .         .  .     208 


Part  II. 

The  Plain  Facts  as  to  the  Tariff. 

X.  Foreign  Trade  and  Protection 

XI.  The  Future  of  Protection  in  America 

XII.  The  Arguments  for  Protection 

XIII.  Protection  and  Wages      ... 

XIV.  Protection  and  Recent  Prosperity 
XV.  The  Tariff  Question  as  it  Stands  To-Day. 


239 

273 
313 
356 
387 
405 


LIST   OF   BOOKS    CITED. 

(  The  date  given  is  the  year  in  which  the  book  came  from  the  author. ) 

Adams,  Henry  C.     Public  Debts.     1887.    New  York  :  D,  Appleton  &  Co. 
Bowen,    Francis.      American    Political    Economy.      1870.      New  York : 

Charles  Scribner's  Sons. 
Bullock,    Charles  J.      Introduction  to  the  Study  of  Economics.      1 897. 

New  York  :  Silver,  Burdett  &  Co. 
Clark,  J.  B.    The  Control  of  Trusts.    190I.    New  York:  The  Macmillan  Co. 
Coler,Bird  S.  Municipal  Government.  1900.  New  York:  D.  Appleton  &  Co. 
Collier,  William  M.    The  Trusts.     1900.     New  York  :  Baker  &  Taylor  Co. 
Dabney,  W.   D.     Public    Regulation  of  Railways.     1889.     New  York: 

G.  P.  Putnam's  Sons. 
Ely,  Richard  T.     Monopolies  and  Trusts.      1900.     The  Macmillan  Co. 
Hadley,  Arthur  T.     Economics.     1896.     New  York  :  G.  P.  Putnam's  Sons. 
Hadley,  Arthur  T.     Railroad  Transportation.     1885.    G.  P.  Putnam's  Sons. 
Ingram,  J.   K.     Article  on  Political  Economy,  Encyclopedia  Britannica. 

Vol.  XIX.      1885.     New  York  :  Charles  Scribner's  Sons. 
Jenks,  Jeremiah  W.     The  Trust  Problem.      1900.     New  York  :  McClure, 

Phillips  &  Co. 
Levasseur,  E.  The  American  Workingman.  1900.  The  Johns  Hopkins  Press. 
Nettleton,  A.  B.     Trusts  or  Competition.      1900.     Chicago  :  Leon  Pub.  Co. 
Newcomb,   H.  T.     Railway  Economics.     1898.     Philadelphia  :  Railway 

World  Publishing  Co. 
Patten,  S.  N.     The  Economic  Basis  of  Protection.     1890.     Philadelphia  : 

J.  B.  Lippincott  Co. 
Political  Science  Quarterly.      Boston  and  New  York  :  Ginn  &  Co. 
Roberts,  Ellis  H.     Government  Revenue.      1884.     Boston:    Houghton, 

Mifflin  &  Co. 
Rogers,  J.  E.  Thorold.     Article  on  Free  Trade,  Encyclopedia  Britannica, 

Vol.  IX.      1878.     Boston  :  Little,  Brown  &  Co. 
Shearman,  Thomas  G.     Article  on  Free  Trade,   Encyclopedia  of  Social 

Reforms.      1898.     New  York  :  Funk  &  Wagnalls  Co. 
Spahr,  Charles  B.      America's  Working    People.       1900.      New  York  : 

Long;mans,  Green  &  Co. 
Stebbins,  Giles  B.     American  Protectionist's  Manual.      1883.      Chicago: 

C.  H.  Kerr  &  Co. 
Sumner,  William  G.     History  of  Protection  in  the  United  States.     1876. 

New  York  :  G.  P.  Putnam's  Sons. 
Von   Halle,   Ernest.     Trusts.      1895.     New  York:    The  Macmillan  Co. 
Wright,  Carroll   D.      Industrial  Evolution  of  the  United  States.      1895. 

Meadville,  Pa.  :  Flood  &  Vincent. 


PART   I. 
THE  PLAIN  FACTS  AS  TO  THE  TRUSTS. 


CHAPTER  I. 


ORIGIN    AND    PURPOSES. 


The  First  and  Greatest. — The  purpose  for  which  most 
of  the  trusts  have  been  organized  is  some  degree  of 
monopoly.  The  advantage  of  being  practically  alone  in 
a  business,  and  able  to  raise  price  without  losing  cus- 
tomers, can  easily  be  imagined  by  a  business  man.  Both 
the  name  and  the  purpose  were  learned  from  the  first 
and  greatest  of  all  the  trusts — the  Standard  Oil  Com- 
pany, worth  ;^842, 000,000  at  the  highest  market  price 
of  $842  a  share  (May,  1901)  and  paying  ;^48, 000,000 
in  dividends  in  the  year  1900.  Here  market  value  rose, 
as  usual  with  corporations,  until  the  dividend  rate  was 
about  6  per  cent.^  The  name  trust  was  derived  from 
the  organization  by  the  leaders  of  the  Standard,  in  1882, 
of  a  number  of  petroleum  refiners  in  Pennsylvania, 
Ohio,  and  adjacent  states,  into  one  consolidated  con- 
cern, managed  by  trustees  for  all  the  separate  refin- 
ing corporations,  of  each  of  whose  stock  the  trustees 
were  given  a  majority  to  hold  and  vote.  During  the 
preceding  eleven   years  the   separate  corporations  had 

>  Of  course,  the  total  is  not  a  selling  value  when  the  property  of  a  cor- 
poration is  based  on  market  prices  of  its  shares.  Offering  many  of  them 
for  sale  causes  prices  to  decline.  As  the  Standard  paid  ^48,000,000  again 
in  I901,  while  the  price  of  its  shares  has  lately  ranged  as  low  as  $645,  it  is 
to  be  presumed  that  investors  do  not  expect  a  continuance  of  the  large 
annual  dividends.  At  par  value  the  Standard's  capital  is  ^100,000,000,  in 
shares  of  ^100  each. 


4  The  Plaiji  Facts  as  to  the  Trusts. 

been  united  by  simpler  agreement,  and  more  or  less  from 
the  start  had  acted  together,  charging  the  same  price  for 
oil,  and  diAiding  territory  in  which  to  sell.  They  grad- 
ually monopolized  the  oil  refining  business,  driving  out 
independent  refiners  by  selling  oil  for  awhile  in  their 
localities  below  a  living  profit,  and  by  getting  from  the 
railroad  companies,  as  the  principal  shippers  of  oil, 
freight  rates  materially  lower  than  those  charged  to 
competitive  refiners. 

Public  Opposition  Aroused, — The  Standard  trust  from 
the  first  was  rich  and  powerful.  By  1885  definite  infor- 
mation of  its  secret  agreements  with  railroads  began  to 
arouse  public  fear  of  monopolistic  combination  ;  though 
several  years  before  the  alarming  extent  of  discrimination 
by  railroads  was  revealed  by  state  investigations.  Before 
1890,  the  American  Sugar  Refining  Company  and  various 
other  trusts  having  appeared  in  the  meantime,  anti-trust 
legislation  began  to  be  agitated.  The  building  up  of  one 
shipper  and  the  pulling  down  of  his  competitors,  by  means 
of  discrimination  in  freight  rates,  led  to  the  enactment 
by  Congress  of  the  Inter-State  Commerce  Law  of  1887, 
designed  to  secure  for  all  shippers  impartial  railway  ser- 
vice. The  Sherman  Anti-Trust  Law  was  passed  by  Con- 
gress in  1 890,  and  similar  laws  have  been  made  by  the 
legislatures  of  thirty-one  states.  But  these  laws  have 
had  little  or  no  effect  to  prevent  the  formation  of  trusts. 
From  lack  of  clear  understanding  on  the  part  of  their 
framers,  and  of  definite  purpose,  the  laws  have  in  most 
cases  not  even  checked  the  evil  practices.  With  some  of 
the  laws  the  main  object  perhaps  was  to  gain  party  ad- 
vantage by  meeting  a  demand  of  the  people,  without 
much  concern  as  to  effective  results.  In  a  few  cases  these 
laws  have  been  declared  unconstitutional,  for  excepting 


Origin  and  Purposes.  5 

from  penalty  combinations  of  workingmen  or  farmers.* 
Trusts  could  not  be  lightly  brushed  aside.  They  rested 
on  economic  causes  too  strong. 

The  Trust  Craze. — Previous  to  the  panic  of  1893  many 
trusts  were  organized ;  including  the  American  Tobacco 
Co.  (cigarettes),  the  American  Book  Co.  (school  books), 
the  American  Cereal  Co.  (oatmeal),  the  United  States 
Baking  Co.  (crackers),  the  Diamond  Match  Co.,  and  the 
National  Lead  Co.  But  after  1898  the  trust  craze 
reached  its  high-water  mark.  About  two  hundred 
trusts  now  exist,  occupying  some  division  of  the  field 
in  nearly  every  general  line  of  business.^  Large  de- 
mand for  products  at  high  prices,  increasing  dividends 
and  rising  market  value  of  shares,  with  the  consequent 
eagerness  of  people  to  invest  money  that  hard  times 
had  kept  idle,  then  enabled  the  promoters  of  a  new  trust 
to  obtain  from  its  shares  and  bonds  the  means  to  buy 
out  at  enormous    prices    the   separate    concerns   to  be 

1  Collier,  152.  A  decision  of  the  United  States  Supreme  Court  in 
March,  1902,  setting  aside  the  Illinois  law  for  excepting  farmers,  will 
have  the  result  of  setting  aside  laws  with  the  same  defect  in  twelve  other 
states. 

^The  Number  of  Trusts. — Nettleton,  page  295,  gave  at  the  beginning 
of  1900  a  list  of  130  trusts,  having  each  a  capital  stock  of  over  ^10,000,000, 
aggregating  in  all  ^5,000,000,000.  A  long  list,  compiled  by  Byron  W. 
Holt,  appeared  in  the  Review  of  Reviews  oi  June,  1899  ;  and  another  list  of 
163,  corrected  by  him  up  to  Dec.  I,  I901,  and  giving  facts  in  some  de- 
tail, is  published  in  the  World  Almanac  for  1902.  Perhaps  the  most 
accurate  count  of  industrial  trusts  is  that  of  the  national  census  of  1900, 
from  which  pools  and  loose  combinations  are  excluded.  A  summary  of  its 
figures  is  given  by  Superintendent  Merriam  in  the  Atlantic  for  March,  1902. 
The  total  is  183,  with  2,203  plants,  and  with  a  capital  of  ;53, 569, 6 1 5, 808. 
Their  total  output  for  the  census  year,  ;^i, 661, 000. 000,  shows  that  they 
absorb  less  of  the  industrial  field  than  is  commonly  supposed.  The  total 
output  of  all  manufacturing  (not  yet  computed)  is  expected  to  reach  about 
;? 1 3, 000, 000, 000.  In  iron  and  steel  products  there  are  69  trusts,  with  469 
plants ;  in  food  products  23,  with  277  plants. 


6  Tlie  Plain  Facts  as  to  the  Trusts. 

united,  and  to  reserve  for  themselves  great  fortunes  in 
trust  stocks  readily  convertible  into  cash.  Trusts  sprang 
up  like  mushrooms,  people  buying  everything  offered 
in  stocks,  without  being  particular  to  investigate  the 
promises  of  earnings. 

Millions  in  It. — Such  opportunities  for  a  shrewd 
financier  or  business  solicitor  to  make  money  quickly, 
the  world  never  knew  before.  There  have  been  mill- 
ions in  trust  making  for  these  promoters,  for  bank- 
ers advancing  capital,  and  for  the  separate  concerns 
selling  out.  The  men  of  the  latter  have  generally  re- 
mained in  control  of  their  plants  sold,  sometimes  with- 
out change  of  the  concern's  name  ;  and  payment  for 
plants  has  been  made  chiefly  in  preferred  stock  or  mort- 
gage bonds  of  the  new  trust.  The  selling  price  has 
usually  been  so  high  that  whatever  becomes  of  the 
trust,  the  important  concerns  selling  to  it  have  been 
richly  rewarded  for  their  part  in  its  formation.  Some 
estimates  in  figures  of  promoters'  profits  are  given  in 
Chapter  II. 

Large  Capitalization. — To  provide  money  from  buyers 
of  the  new  shares,  and  plenty  of  common  stock  for  pro- 
moters, and  to  throw  in  extra  to  sellers  of  plants,  the 
total  capital  stock  of  a  trust  is  made  very  large,  from  two 
to  five  times  the  actual  cost  to  reproduce  the  physical 
property  it  buys,  but  perhaps  not  larger  than  as  a  mon- 
opoly it  might  pay  five  or  six  per  cent  dividends  upon 
in  the  present  flood  tide  of  vast  business  and  high  prices 
for  products.  The  capital  stock  of  an  ordinary  trust 
ranges  from  ten  to  seventy-five  millions  of  dollars.  The 
largest  of  all  the  trusts  is  one  of  the  latest.  This  is  the 
United  States  Steel  Corporation,  organized  in  March, 
1 90 1,  under  the  leadership  of  J.  Pierpont  Morgan,  by 


Origin  and  Purposes.  7 

consolidating  the  Carnegie  Steel  Company  with  nine 
other  great  concerns,  most  of  which  had  previously  been 
formed  by  combination  of  smaller  ones.  Other  concerns 
were  absorbed  afterward.^ 

Sale  of  Stocks  and  Bonds. — The  bonds  issued  by  a  trust, 
bearing  a  fixed  rate  of  five  or  six  per  cent  interest,  and 
secured  by  mortgage  on  property,  are  applied  on  the  pur- 
chase price  of  plants  bought,  and  are  sold  for  cash,  at 
about  face  value,  to  investors  of  large  sums.  The  shares 
of  preferred  stock,  on  which  a  fixed  dividend  of  five  to 
eight  per  cent  is  paid  first  from  net  earnings,  come  next 
in  value  to  the  bonds,  being  based  on  substantial  property, 
and  are  disposed  of  in  a  similar  way.  There  have  been 
cases,  it  is  said,  in  which  bonds  and  preferred  stock 
exceeded  the  cash  value  of  a  business  when  fairly  com- 
puted. The  shares  of  common  stock,  on  which  a  divi- 
dend of  some  percentage  is  paid  if  any  balance  is  left 
after  paying  the  fixed  dividend  on  the  preferred  stock, 

1  The  World's  Greatest  Corporation.— The  total  of  the  Steel  Corpora- 
tion's shares,  nearly  all  issued  to  stockholders,  is  ^1,1 00,000,000,  divided 
equally  in  preferred  and  common  stock  ;  and  besides,  it  issued  ^304,000,- 
000  in  5  per  cent  bonds,  all  of  which  are  believed  to  have  been  paid  Mr. 
Carnegie  for  his  60  per  cent  interest  in  the  steel  company  bearing  his 
name.  (Indus.  Commission,  Vol.  XIII.)  The  Steel  Corporation's  total 
capitalization  is  therefore  ;?  1,404,000, 000.  Its  net  earnings  for  its  first 
nine  months,  ending  November  30,  were  584,779,298,  exceeding  10  per 
cent  on  its  stock.  In  August  it  was  said  to  be  negotiating  for  absorption 
of  the  trust  comprising  the  great  iron  companies  of  Tennessee  and  Ala- 
bama ;  and  lately  it  was  reported  to  have  bought  iron  mines  in  Sweden. 
The  Steel  Corporation  supports  a  million  people,  counting  families  of  em- 
ployees, controls  two-thirds  of  the  American  steel  industry,  owns  115  lake 
ships,  6  railroads,  80  per  cent  of  the  known  deposits  of  Lake  Superior 
iron,  105,000  acres  of  land  in  Pennsylvania,  and  leases  98,000  acres  of 
gas  land.  To  this  list  must  be  added  50,000  acres  of  coal  land  recently 
leased  in  West  Virginia.  See  article  in  McClure's  Magazine,  Nov.  I901, 
and  the  corporation's  full  report  in  New  York  Financial  Chronicle,  Feb. 
I,  1902. 


8  The  Plain  Facts  as  to  the  Trusts. 

are  sold  at  lower  prices  in  the  stock  market,  according  to 
prospects  of  earnings,  and  are  divided  liberally  among 
the  promoters  as  payment  for  services,  and  among  the 
sellers  of  plants  as  extra  portions  of  purchase  price. 
Only  9  out  of  30  trusts  reported  their  common  stock  as 
sold  for  cash,  and  but  i  mentioned  cash  alone.  Good 
will  was  usually  the  consideration  mentioned — earning 
power  prospective,  or  under  favoring  conditions.^ 

Common  Stock  Based  on  Water  has  long  been  the  rule 
with  American  railroad  and  street  car  companies,  the 
necessary  money  being  paid  in  on  preferred  stock  or 
mortgage  bonds.  The  advantages  of  this  method  are 
that  the  organizers  need  furnish  only  a  little  cash  for  start- 
ing expenses,  the  rest  being  practically  borrowed,  and 
that  when  monopoly  gains  arise  they  are  hidden,  being 
but  a  low  percentage  on  a  capitalization  doubled  with 
watered  stock.  Monopoly  gains  publicly  known  may 
cause  trouble,  such  as  legislation  to  lower  fares,  or  tax- 
ation to  take  a  share  for  the  public.  The  later  trusts 
have  usually  issued  preferred  stock  instead  of  bonds. 
With  such  stock,  though  often  similar  to  bonds  in  being 
a  lien  on  the  property,  the  company's  business  is  not 
passed  by  the  court  to  a  receiver  in  case  of  failure  to 
pay  the  interest,  but  is  left  in  control  of  its  directors. 
Except  on  false  pretense  of  earning  power,  issue  of 
common  stock  on  expectations  requires  some  monopoly, 
at  least  in  good  will  not  soon  to  be  taken  by  a  competitor. 

•  United  States  Labor  Bulletin,  No.  29.  Good  will  here  includes 
patents  and  trademarks,  and  also  the  favor  of  customers.  The  latter  kind 
is  often  lost,  to  some  extent,  by  entering  a  trust.  By  the  census  of  I900 
the  trusts  had  a  total  capital  of  $3,569,615,808,  but  only  $1,458,522,573 
of  tangible  property  ;  less  by  $216,600,000  than  the  total  of  bonds  and  pre- 
ferred stock,  leaving  for  good  will  and  water  J2, 01 8, 000, 000.  (  The  At- 
lantic, March,  1902.) 


Origin  and  Purposes.  g 

The  Change  from  Trusts  into  Corporations.  —  Most 
of  the  trusts  are  now  regularly  organized  corporations, 
though  some  are  still  united  by  pools  or  agreements. 
The  separate  concerns  forming  the  oil,  sugar,  and  other 
trusts  united  in  each  case  into  a  single  corporation  about 
ten  years  ago,  laws  having  been  enacted  in  some  states 
against  combination  by  means  of  trustees  holding  and 
voting  the  shares  of  stockholders,  and  courts  having 
decided  such  action  to  be  outside  the  powers  of  a  cor- 
poration.^    In  combining  now,  as   a  rule,  the   separate 

'  "  The  Secrecy  of  the  Trusts,  their  power  to  refuse  information,  and 
their  complete  lack  of  responsibility,  was  indeed  a  very  great  danger." 
(Von  Halle,  109.)  This  very  secrecy  was  evidence  that  the  motive  of 
consolidation  was  not  good — an  indication  of  preparedness  to  resort  to 
bribery  or  corrupt  lobbying.  An  evil  influence  from  such  organizations  on 
legislatures  is  inevitable  (on  courts  also  some  have  believed),  in  view  of 
the  necessity  they  make  for  restraint  by  law  ;  though  blackmailing  legis- 
lators sometimes  propose  a  bill  against  a  corporation  to  force  it  to  buy  them 
off — demanding  in  one  case  it  seems,  as  pay  for  passing  a  good  bill,  ^I50>- 
000  for  the  party  in  power.  (Jenks,  191.)  Among  the  charges  against 
trusts,  apparently  truthful  in  a  few  cases,  were  attempting  to  blow  up  rival 
plants,  burning  record  books,  stealing  public  documents,  and  mutilating  court 
records.  The  ablest  lawyers  were  employed  to  draw  the  trust  agreements, 
embodying  in  them  as  little  information  as  possible.  And  after  the  change 
to  corporations  the  secrecy  in  some  cases  continued.  More  publicity  was 
desired,  but  instead  there  was  a  more  complete  withdrawal  from  publicity. 
"  Nothing  shows  more  clearly  the  mistake  of  the  present  anti-trust  legisla- 
tion. The  trusts  comply  with  the  letter  of  the  law  only  to  more  safely  cir- 
cumvent its  intentions."  (Von  Halle,  102.)  The  Standard  trust  dissolved 
into  twenty  separate  corporations,  but  as  the  nine  trustees  held  a  majority 
share  of  each,  they  continued  to  control  as  before,  and  have  since  increased 
the  stock  of  one,  the  present  Standard  Company,  to  be  exchanged  for  the 
shares  of  all  the  others.      (Jenks,  114. ) 

The  Objection  to  Trust  Stocks. — One  reason  why  trust  stocks,  called 
"industrials,"  are  held  in  disfavor  has  been  dishonesty  in  some  cases  by 
managers,  who,  knowing  disaster  was  to  happen,  sold  out  their  stock  and 
threw  losses  on  innocent  buyers.  There  have  evidently  been  cases  where,  in 
order  to  lower  their  fellow  stockholders'  shares  for  their  own  buying,  trust 
managers  have  closed  down  plants,  injuring  the  business,  and  reducing 
workmen  to  idleness.     Real  prosperity  in  the  company  has  been  kept 


10  TJie  Plain  Facts  as  to  the  Trusts. 

firms  and  corporations  sell  out  their  plants  and  business 
to  the  one  great  new  corporation  that  is  to  include  them 
all.  Some  of  the  largest  combinations  bought  the  shares, 
not  plants,  of  the  uniting  concerns.  This  method  is  de- 
scribed further  on. 

Yet  the  Word  Trust  is  Still  Properly  Used. — It  has  a 
meaning  of  its  own,  distinct  from  that  of  the  word  cor- 
poration. The  latter  means  a  company  of  persons,  own- 
ing and  holding  its  capital  in  shares,  organized  to  carry 
on  some  business  through  directors  and  officers.  The 
word  trust  includes  all  this,  but  with  the  additional  mean- 
ing that  it  owns  most  of  the  plants  in  its  line  of  business, 
and  holds  in  some  measure  a  monopoly  of  the  supply  of 
the  commodity  it  produces,  which  monopoly  enables  it  to 
charge  a  higher  price  than  its  members  could  have  ob- 
tained while  they  were  yet  separate  and  competing  pro- 
ducers. 

Latest  Form  of  Trust. — The  United  States  Steel  Cor- 
poration is  a  new  form  of  trust,  though  but  one  among 
a  number  of  its  kind,  organized  since  1898,  and  called 
"parent"  or  "  holding  "  companies.  Its  purpose  is  to 
perform  the  service  of  owning  and  controlling  the  stock 
of  the  separate  corporations  united ;  that  is,  it  owns  the 
shares  for  the  owners — does  for  them  the  work  of  own- 
ing and  managing,  and  especially  of  uniting  and  harmon- 
izing all  their  varied  business.  Its  shares  were  exchanged 
for  the  shares  of  the  separate  companies,  according  to 
the  differing  values  of  the  latter  ;  and  being  the  majority 
stockholder,  it  manages  each  of  the  companies  through 
its  absolute  power  of  choosing  their  directors.     They  still 

hidden  for  the  same  purpose.  (Jenks,  i86,  214. )  In  some  cases,  it  has 
been  believed,  trust  managers  buying  their  own  company's  shares  made  the 
purchase  a  personal  transaction  when  there  was  a  gain,  but  a  company 
transaction  when  there  was  a  loss.      (/'.  S.  Quarterly,  1895,  p.  2)i3-) 


Origin  and  Purposes.  1 1 

exist  as  before,  and  operate  their  mills,  though  the  Steel 
Corporation  succeeded  in  buying  99^4^  per  cent  of  all 
their  stock.  The  remaining  fraction  of  5^  of  i  per  cent 
probably  accounts  for  the  frequent  sales  on  the  New 
York  stock  exchange  of  shares  of  the  Republic  Steel 
Company,  one  of  the  concerns  united. 

Its  Business  is  to  Own  Stock. — The  Steel  Corporation^ 
therefore,  which  has  no  mills,  only  an  office,  exists  for  I 
the  same  purpose  as  did  the  old  Standard  Oil  Trust,  j 
The  difference  is  that  the  oil  trust  had  no  legal  right  to  / 
exist,  not  being  incorporated,  and  resting  on  agreements 
which  the  law  forced  the  separate  corporations  to  annul. 
But  the  steel  trust  has  taken  as  its  business  the  owning 
and  voting  of  the  stock  of  the  companies  it  has  united, 
and  has  been  legally  incorporated  to  perform  that  service. 
It  manages  each  of  them,  and  from  its  income,  all  de- 
rived from  dividends  on  their  stock  it  holds,  it  pays  the 
dividends  on  its  own  stock.  As  dividends  from  the  old 
stock  are  used  to  pay  dividends  on  the  new,  organizing 
the  Steel  Corporation  was  not  a  watering  of  capital  stock 
in  manufacturing  except  so  far  as  it  may  have  bought  / 
stock  in  its  companies  at  inflated  prices  with  its  own  / 
stock,  of  which  its  total  issue  exceeded  the  total  of  the 
united  companies  by  ^484,000,000.* 

^  Detailed  information  of  the  Steel  Corporation  was  given  in  testimony 
to  the  Industrial  Commission,  Vol.  XIII. 

Railway  Parent  Companies. — In  November,  1901,  the  Northern 
Securities  Company,  with  a  capital  stock  of  ^400, 000,000,  was  organized 
in  New  Jersey  to  hold  the  stock  of  the  J.  J.  Hill  railway  combination, 
composed  of  the  Great  Northern,  Northern  Pacific,  and  Burlington  systems. 
As  consolidation  of  parallel  roads  is  contrary  to  their  statutes  or  constitu- 
tions, Minnesota  and  the  states  further  west  are  seeking  in  the  United 
States  Supreme  Court  to  dissolve  this  parent  company  ;  and  consequently, 
the  Southern  Securities  Company,  organized  a  few  weeks  later  to  hold  the 
stock  of  roads  not  yet  made  known,  provided  in  its  charter  that  state  laws 


1 2  The  Plain  Facts  as  to  the  Trusts. 

Methods  of  Securing-  a  Monopoly. — With  many  of  the 
newer  trusts  there  was  doubtless  little  expectation  among 
the  competitors  combining,  that  theirs  was  to  be  a  mon- 
opoly of  permanence.  A  manufacturer  willingly  enter- 
ing sold  to  the  combination  because  its  promoters  paid 
high  prices  for  his  property,  and  still  left  him  in  charge 
of  his  factory,  with  territory  in  which  his  branch  was  to 
have  all  sales  in  reach,  and  in  which  he  might  go  on 
alone  as  before  in  case  the  combination  should  be  dis- 
solved. There  is  very  little  property  that  cannot  be 
bought  if  a  price  high  enough  is  offered.  A  firm  or  cor- 
poration not  consenting  readily  to  enter  a  new  trust  has 
often  been  induced  to  join  from  fear  that  the  trust  w^ould 
force  it  out  of  business  by  selling  in  its  territory  for  less 
than  a  living  profit.  An  aggressive  ink  maker  says  he 
was  warned  that  he  would  be  "  crushed  like  a  caterpil- 
lar." A  leading  concern,  specially  desired  to  head  the 
list  for  the  influence  of  its  action  upon  others,  may  be  in- 
duced to  join  by  offering  an  exceptional  price,  and  by 
tendering  to  its  chief  owner  the  presidency  of  the  trust. 
Sometimes  a  separate  producer  sells  out  for  cash,  not 
taking  any  stock,  and  engages  in  other  business.  Pur- 
chased plants  not  well  equipped,  nor  favorably  located, 
are  usually  closed  out  by  the  trust,  sooner  or  later.  Some 
other  than  the  territorial  basis  for  dividing  business  is 
adopted  where  that  is  unsuitable. 

Need  Not  Control  All  the  Supply  to  be  a  Monopoly. — 
The  nearer  a  trust  attains  the  position  of  a  complete 

were  to  be  observed.  By  this  method  of  parent  companies,  sometimes 
called  proprietary  companies,  the  simpler  agreement  of  community  of 
interest  among  leading  owners  is  changed  by  adding  the  strength  and  per- 
manence of  the  old  trust  combination.  For  twenty-five  years  the  Pennsyl- 
vania Company  has  existed  as  such  a  corporation,  formed  to  unite  control 
of  the  companies  it  absorbed,  such  as  the  Fort  Wayne  and  the  Panhandle, 
with  the  original  Pennsylvania  proper. 


Origin  and  Purposes.  1 3 

monopoly,  the  better  as  a  rule  are  its  immediate  chances 
to  get  high  prices  from  consumers,  and  the  greater  its 
power  to  keep  competitors  out  of  its  field.  Though  the 
word  monopoly  originally  meant  control  of  the  whole 
supply,  cases  of  absolute  monopoly  probably  do  not  exist 
aside  from  copyrighted  books  and  patented  articles.  The 
Standard  Oil  Company  for  some  years  has  produced 
from  80  to  85  per  cent  of  the  total  American  output  of 
refined  petroleum,  and  in  June,  1901,  it  bought  out  a 
leading  competitor  of  Cleveland — Scofield,  Shurmer  & 
Teagle.  The  sugar  trust  at  one  time  produced  98  per 
cent  of  the  total  output.  Yet  a  monopoly  business  fall- 
ing short  of  completeness  by  15  or  20  per  cent  may 
often  be  more  desirable  to  its  owners  than  if  it  produced 
the  whole  of  the  supply.  The  existence  of  competing 
concerns,  which  are  thought  sometimes  to  be  really 
owned  by  the  trust  or  in  alliance  with  it,  relieves  it  to 
some  extent  from  the  public  disfavor  in  which  a  mon- 
opoly is  held  ;  while  a  few  weaker  concerns  in  its  field, 
at  the  mercy  of  its  monopolistic  club,  and  sometimes 
having  to  sell  lower  because  too  small  to  be  depended 
on  for  a  supply,  will  not  be  able  nor  disposed  to  inter- 
fere substantially  with  its  designs.  Even  with  an  out- 
put composing  but  half  the  supply  of  a  commodity  — 
perhaps  less  —  a  producer,  by  withholding  from  mar- 
ket, might  obtain  a  price  somewhat  monopolistic  in 
a  time  of  strong  demand.^  Independent  concerns  per- 
mitted to  live  make  a  good  profit  when  the  trust  raises 
price. 

Monopoly  Buying  as  well  as  Selling.  —  A  strong 
monopoly  may  be  practically  the  only  buyer  of  its  raw 
material,  as  well  as  practically  the  only  seller  of  its  fin- 

1  Sidgwick,  quoted  by  Bullock,  302. 


14  Tlic  Plain  Facts  as  to  the  Trusts. 

ished  product.  In  that  case  it  may  exact  monopoly 
gains  at  both  ends,  arbitrarily  lowering  the  price  at 
which  it  buys,  and  raising  the  price  at  which  it  sells. 
The  Standard  Oil  Company  has  been  the  only  important 
customer  of  owners  of  oil  wells.  At  times  it  paid  the 
well  owners  of  a  district  very  high  prices  for  crude  oil, 
until  the  capital  of  a  rival  pipe  line,  having  to  pay  as 
much,  was  exhausted,  forcing  it  to  sell  out  cheap  to  the 
Standard  ;  and  then,  having  the  w^ell  owners  in  its  power, 
the  Standard  made  its  prices  to  them  very  low,  some- 
times forcing  them  to  sell  out  to  it  also.  Such  action, 
proved  by  testimony  of  well  owners,  has  been  admitted 
by  the  Standard  to  be  substantially  true  in  some  cases, ^ 

'  Jenks,  155.     Also  in  North  American  Review,  June,  1901. 

Some  Extreme  Cases  of  Forcing  Down  Price. — Producers  of  some 
farm,  forest,  or  mine  products,  on  which  price  is  not  fixed  by  export  to 
world  markets,  may  fall  under  the  power  of  a  trust  as  a  monopolistic 
buyer.  The  Big  Four  meat  combination  or  pool,  consisting  of  Messrs. 
Armour,  Swift,  Morris,  and  Hammond,  have  regularly  set  and  changed 
prices  for  cattle  in  some  markets.  "  They  annihilate  independent  butchers 
by  cheaper  sales  through  their  own  agents.  If  a  seller  of  cattle  refuses  to 
take  the  first  bid,  he  is  generally  forced  to  accept  a  lower  one.  The  pur- 
chasing agents  are  instructed  never  to  overbid  each  other.  The  principals 
do  not  interfere  with  each  other  in  certain  localities.  They  bid  jointly  for 
public  contracts,  and  ruin  those  who  dare  to  appear  against  them."  (Von 
Halle,  Trusts,  1895,  page  22.)  The  above  was  probably  a  true  statement 
of  conditions  when  at  their  worst. 

Possible  in  Various  Lines  of  Business. — The  leather  trust  noticeably 
lowered  the  price  of  hides  when  it  began  business,  as  the  cigarette  trust  did 
with  its  kind  of  tobacco.  (Von  Halle,  70. )  The  sugar  trust  claimed  (New 
York  trust  report  of  1897)  that  by  forcing  down  prices  of  raw  sugar  it  had 
lowered  its  cost  of  producing  refined.  Similar  claims  have  been  made  of 
the  rubber  trust's  buying  in  .South  America,  from  whose  partly  civilized 
people,  living  in  an  interior  wilderness,  shrewd  agents  might  get  valuable 
materials  by  trading  cheap  goods,  and  might  so  influence  or  force  them  as  to 
keep  out  rival  traders.  Tropical  products  are  thus  monopolized  effectually, 
being  obtained  in  some  cases,  as  with  ivory  in  Africa,  from  animals  or  plants 
becoming  extinct.  Obviously,  by  buying  unitedly  in  a  trust,  instead  of  bid- 
ding against  one  another,  a  number  of  buyers  could  save  by  lowering  price, 


Origin  and  Purposes.  1 5 

No  Monopoly  if  Strong  Concerns  Refuse  to  Join. — In 

some  cases  the  promoters  of  a  trust  fail  to  obtain  as 
members  one  or  more  of  the  leading  separate  concerns. 
The  trust  then  has  few  of  the  advantages  of  a  monopoly. 
This  was  the  case  when  Barnhart  Brothers  &  Spindler 
of  Chicago  refused  to  join  the  American  Type  Founders' 
Company,  organized  in  1892.  Being  the  most  aggressive 
firm  of  type  makers  in  the  country,  with  an  annual  busi- 
ness at  or  near  the  first  rank,  they  were  beyond  the  reach 
of  threats  or  punishment.  The  new  company  obtained 
some  monopolistic  advantage  through  its  ownership  of 
the  good  will  of  old  foundries  not  changed  in  name  or 
management,  and  through  its  possession  of  the  services 
of  most  of  the  original  designers  of  new  faces  of  type.  . 

But  it  never  gained  control  of  enough  of  the  type  output  yX 
to  enable  it  to  raise  prices  without  good  reason. 

Partial  and  Local  Trusts. — Some  of  the  trusts  organ- 
ized since  1897  are  not  trusts  in  the  full  monopolistic 
sense,  but  combinations  of  a  portion  of  the  established 
concerns,  formed  to  lessen  (not  destroy)  competition,  to 
reduce  expenses  by  consolidating  management,  to  gain 
perhaps  the  partial  monopolistic  advantage  of  controlling 
a  large  portion  of  the  supply,  and  perhaps  most  of  all 
sometimes  to  float  the  new  combination's  stock  at  the 
high  prices  of  the  times.  The  Federal,  the  Republic, 
and  the  National  steel  companies  are  each  a  combination 
of  a  portion  of  the  steel  industry ;  similar  concerns  are 

though  if  supply  fell  short  they  would  have  to  offer  more  to  increase  it.  A 
beet  sugar  factory,  usually  a  monopoly  buyer,  must  pay  well  to  induce 
farmers  to  grow  beets.  If  they  were  to  get  into  a  rut  of  beet  growing,  and 
be  slow  to  give  it  up,  advantage  might  then  be  taken  of  them. 

A  Trust  Could  Force  Down  Wages  Likewise,  but  perhaps  would  not 
thus  provoke  public  hostility.  When  controlling  practically  an  entire  in- 
dustry, a  trust  is  a  monopolistic  buyer  of  its  special  kind  of  labor. 


1 6  The  Plain  Facts  as  to  the  Trusts. 

the  steel  hoop,  steel  sheet,  tin-plate,  wire,  and  bridge 
combinations.  All  these  are  now  included  in  the  Steel 
Corporation,  Outside  of  it  are  still  a  number  of  impor- 
tant concerns.  The  American  Locomotive  Company- 
does  not  include  the  Baldwin  works  at  Philadelphia, 
which  are  a  much  larger  concern  than  any  one  of  those 
united.  The  combination  will  manufacture  about  two- 
thirds  of  the  total  American  output  of  locomotives.  The 
Amalgamated  Copper  Company  includes  the  large  mines 
of  Montana,  but  not  the  large  mines  of  Michigan,  one 
of  the  latter  being  the  second  largest  in  the  country  and 
the  world.  The  flour  trust  includes  many  of  the  leading 
spring  wheat  grinders  of  the  Northwest,  but  not  the 
Pillsbury  Mills  at  Minneapolis,  the  largest  of  all,  and  of 
course  not  the  hundreds  of  local  mills  in  the  grain  states. 
The  concerns  owning  four  of  the  large  planing  mills  of 
the  Saginaw  Valley  have  lately  combined,  to  reduce  gen- 
eral expenses  and  lessen  competition.  Theirs  is  a  local 
trust,  of  which  there  are  a  number  formed  among  brew- 
ers and  ice  dealers,  and  sometimes  among  bakers.  A 
very  small  monopolistic  trust  is  that  of  local  newspapers 
in  Ann  Arbor,  Mich.,  owning  for  a  time  every  newspaper 
press  in  the  city. 


CHAPTER    II. 

POSSIBILITIES    FOR    GOOD    AND    FOR    EVIL. 

Monopolies  Odious  for  Three  Centuries.  —  Monopolies 
granted  to  favorites  by  the  king,  or  sold  for  money, 
having  become  odious  three  centuries  ago,  and  a  body 
of  law  having  since  grown  up  against  them,  beginning 
particularly  with  the  English  Monopolies  Act  of  1623, — 
it  is  not  surprising  that  the  American  people  have  re- 
garded the  trusts  with  disfavor  and  anxiety.  Inherited 
dislike  of  monopolies  was  deepened  by  the  Standard  Oil 
Company's  methods  of  destroying  competition,  so  long 
felt  to  be  the  life  of  progress  in  trade,  and  the  safeguard 
of  low  prices  and  fair  treatment  to  consumers.  But 
monopolistic  as  they  are,  not  all  features  of  the  trusts 
are  bad.  Besides,  as  shown  in  their  rapid  increase,  the 
motive  for  consolidation  is  strong,  and  influences  a  large 
proportion  of  the  country's  most  important  class,  the 
commanding  captains  of  industry.  The  question  there- 
fore is  how  to  direct  the  combining  force,  to  avoid  its 
evils  and  to  secure  its  advantages. 

Trusts  may  Promote  tlie  Public  Welfare  in  various  ways. 

By  Making  Best  Goods. — First,  the  larger  a  corpora- 
tion, as  a  rule,  the  better  the  goods  it  can  produce. 
When  capital  and  trade  reach  largest  proportions,  the 
labor  of  highest  skill,  and  the  world's  best  materials, 
are  at  ready  command.  Scientific  experts  of  the  first 
rank  may  then  be  employed,  to  devote  all  their  time  to 
studying  out  improved  processes  and  appliances.  Pos- 
2  17 


1 8  The  Pla'ui  Facts  as  to  the  Tj-usts. 

sibilities  of  human  progress  might  become  decidedly 
greater  when  utiHzed  with  the  unHmited  capital  and 
picked  wisdom  of  the  trusts,  than  when  left  to  the  desul- 
tory efforts  of  hundreds  of  struggling  competitors. 

By  Making  Goods  Cheapest. —  Second,  the  larger  a 
corporation,  as  a  rule,  tlie  cheaper  it  can  sell  the  best 
goods  and  services.  A  great  trust  can  buy  quickly  the 
latest  machinery  as  it  is  introduced,  and  operate  it  with 
that  highest  paid  labor  that  turns  out  most  and  best 
products,  and  at  lowest  cost  per  item,  placing  every  man 
where  his  product  will  be  largest.  Such  a  trust  can 
buy  raw  materials  at  the  lowest  prices,  which  are  given 
in  sales  of  largest  quantities,  and  can  transport  them 
and  its  products  at  the  lowest  freight  rates,  which  are 
allowed  for  largest  shipments.  By  combination  it  can 
save,  and  apply  toward  reduction  of  the  consumer's 
price,  many  of  the  costs  of  general  management,  adver- 
tising, traveling  salesmen,  and  of  multiplied  agencies, 
all  of  which  costs  are  necessary  for  every  one  of  sepa- 
rate competitors.  Combination  also  gives  it  the  benefit 
of  the  patents,  trademarks,  and  special  experience  or 
skill  of  every  concern  uniting. 

Many  Ways  of  Saving. — A  trust  can  engage  profit- 
ably in  making  its  own  supplies,  as  the  Standard  Oil 
Company  makes  barrels  and  cans,  and  like  that  com- 
pany, can  extract  all  the  by-products  worth  the  expense 
of  saving  them.  When  handling  bulky  materials,  it  can 
operate  like  the  steel  trust  its  own  mines,  ore  fleets,  and 

ilroads,  giving  each  mill  a  regular  supply  (very  im- 
portant) of  raw  materials,  from  the  ships  and  mines  in- 
volving least  expense  and  delay  of  transport.  Like  the 
steel  trust  also,  it  can  carry  its  products  from  their  first 
forms  into  forms  nearer  the  finished  commodities,  chang- 


Possibilities  for  Good  and  for  Evil.  19 

ing  steel  into  tin-plate,  wire,  and  pipe.  From  its  occu- 
pation of  the  whole  field,  its  managers  can  estimate 
demand  accurately,  sav^e  interest  by  dropping  needless 
varieties  and  keeping  down  the  stock  on  hand,  and  avoid 
making  goods  not  wanted,  whose  accumulation  lowers 
prices  ruinously,  throws  men  out  of  employment,  and 
brings  hard  times.  Reaching  the  highest  limit  in  qual- 
ity, and  the  lowest  in  cost,  it  can  develop  with  its  ample 
capital  an  export  trade  throughout  the  world,  employ- 
ing additional  labor,  and  increasing  the  country's  busi- 
ness. In  short,  a  well  managed  trust  can  work  its  field 
in  every  direction  for  all  there  is  in  it,  and  the  vast 
aggregate  it  thus  saves  it  can  divide  with  the  public  in 
higher  wages  to  its  own  workmen,  and  in  lower  prices 
to  consumers. 

But  are  Trusts  Organized  to  Confer  all  these  Benefits  on 
the  people  ?  Hardly.  The  fact  that  they  can  be  con- 
ferred is  no  evidence  that  they  lidll  be.  Human  nature 
and  business  motive  remain  the  same — certainly  not  less 
alert  to  self-interest  than  heretofore.  Likelihood  of  re- 
ceiving these  benefits  regularly  is  swept  away  by  men- 
tion of  the  one  word  monopoly.^ 

'  Trust  Stocks  for  Savings. — It  has  been  said  that  trusts  benefit  their 
workmen  and  others  by  giving  them  a  part  in  the  ownership  of  industry, 
through  sale  of  shares  on  the  stock  exchange  to  buyers  everywhere.  The 
present  has  even  been  called  a  time  of  cooperation  or  public  ownership, 
and  ten  years  ago  a  time  of  individualism.  But  is  there  a  real  change  for 
the  better?  Scattered  holders  of  a  few  shares  act  less  than  they  are  acted 
upon.  Instead  of  helping  to  direct  a  business,  they  only  add  to  the  capital 
and  power  centralized  with  the  few  by  whom  a  trust  is  controlled.  Safer 
means  of  investing  savings  were  in  reach  before,  in  local  bank  and  factory 
stock,  and  in  railroads  and  mines,  though  more  investment  securities,  safe 
and  readily  salable  anywhere,  such  as  the  best  railroad  shares,  were  and 
are  needed  to  gather  up  the  smaller  sums  of  idle  capital.  Trust  stocks 
bought  at  recent  high  prices  are  not  the  kind  of  investment  for  small  sav- 


20  Tlic  Plain  Facts  as  to  tlic  Trusts. 

Competition  No  Bugbear  to  a  Seller  of  Best  Values. — If 

the    purpose  of   consolidation  were    to   increase  capital 

ings.     If  it  is  true  that  industry  now  has  ten  times  as  many  owners  as 
formerly,  small  holders  may  have  reason  to  regret  it. 

Ownership  of  Monopoly  Stock  Lowers  Morals.  — Perhaps  one  sure 
effect  of  a  wide  sale  of  trust  stocks  would  be  a  lowering  of  morals  among 
purchasers  toward  the  level  of  stock-watering  promoters  and  club-wield- 
ing managers.  If  it  is  true,  as  reported  (Ely,  Cosmopolitan,  Aug.  1 901), 
that  75,000  people  in  Philadelphia  own  stock  in  monopolies,  the  notorious 
corruption  of  that  city  is  more  easily  understood.  Distributed  ownership 
is  sometimes  an  evil.  The  French  government  in  the  later  seventies  might 
have  lowered  interest  on  the  national  debt,  but  did  not,  for  fear  of  losing 
political  favor  with  the  many  thousands  of  bond-holding  voters.  (Adams, 
43. )  Mr.  Flint  even  says  that  consolidation  came  too  late  to  prevent  the 
gathering  of  great  fortunes,  but  that  it  may  make  such  fortunes  rare  here- 
after. How  this  can  be  does  not  appear.  Besides  vast  gains  from  stock 
manipulation  on  a  gigantic  scale,  monopoly  profits  now  increase  many  a 
millionaire's  wealth  faster  than  ever  before.  In  view  of  the  increase  of 
price  to  consumers  by  trusts,  and  of  their  tendency  to  lower  prices  paid  to 
farmers,  there  seems  to  be  more  reason  for  the  complaint,  usually  exagger- 
ated, that  trusts  tax  the  common  people  to  enrich  the  plutocrats.  Other 
phases  of  this  part  of  the  subject  are  discussed  in  Chapter  VII. 

Scarcity  of  Facts  to  Justify  Trusts. — Stronger  proof  of  lack  of  facts 
to  justify  trusts  could  not  be  asked  than  that  furnished  in  the  forty  pages  of 
well  written  matter  contributed  by  some  of  the  ablest  trust  officials  to  the 
A^orth  American  Review  of  May,  1901.  Mr.  Logan's  article,  whose  pur- 
pose was  to  show  that  ignorant  competition  made  trusts  necessary,  really 
argued  on  the  other  side,  by  explaining  how  producers  who  guess  at  costs, 
and  cut  prices  blindly,  soon  fail  ignominiously  and  disappear  of  themselves, 
leaving  good  profits  to  concerns  conducted  legitimately.  The  weak  pro- 
ducer does  not  long  set  a  price  for  the  strong,  nor  keep  the  latter  from  rais- 
ing wages  when  this  is  required  for  pushing  his  business.  The  strong  goes 
ahead  on  his  own  judgment,  not  waiting,  like  the  weak,  to  see  what  others 
do.  The  other  articles  in  the  Re^new  are  little  less  open  to  attack.  The 
tangled  web  woven  in  defence  of  trusts  must  have  enmeshed  one  of  these 
writers  when  two  months  earlier,  in  the  same  periodical,  he  saitl  an  excess 
of  imports  was  the  same  as  a  merchant's  net  loss,  as  if  the  British  would 
or  could  continue  their  foreign  trade  year  after  year  with  an  annual  loss  of 
three-quarters  of  a  billion.  Another  wrote  as  if  the  sugar  trust  were 
liberal  in  taking  as  small  a  profit  as  it  has. 

The  Relation  is  Unnatural  When  Buyers  Must  Depend  on  a 
Seller's  Generosity.     He  alone  is  then  "judge,  jury,  and  executioner  " 


Possibilities  for  Good  aiid  for  Evil.  21 

and  ability  in  order  to  make  better  goods,  and  to  reduce 
cost '  for  the  sake  of  lower  prices,  there  would  be  little 

A  despot,  however  good,  is  out  of  place  in  modern  society.  Indirect 
efifects  adverse  to  the  seller,  such  as  making  poorer  the  society  in  which 
he  lives,  are  too  far  removed  to  restrain  him  properly.  Nature  adjusted 
the  usual  economic  relations  to  save  people  from  such  temptation.  By 
yielding  to  it,  in  the  opportunity  of  railroad  discrimination,  some  men  of 
noble  traits  have  become  relentless  monopolists.  There  are  few  whom 
monopoly  would  not  bring  to  the  standard  said  to  have  been  expressed  by 
Mr.  Havemeyer  :  "  I  don't  care  two  cents  for  your  ethics  ;  I'm  in  this  for 
business."  (Nettleton,  74.)  Where  price  is  kept  down,  it  is  hardly  to 
help  the  consumer,  but  to  avoid  arousing  competition,  and  provoking  hostile 
legislation. 

'  Great  Salaries. — The  report  of  a  salary  of  ^225,000  a  year  for  Presi- 
dent Schwab  of  the  steel  trust  did  not  sound  economical,  nor  did  the  report 
that  President  Callaway,  of  the  locomotive  trust,  was  to  receive  a  salary  of 
;?  100,000  and  a  bonus  or  extra  sum  of  $500,000  of  the  trust's  stock. 
Whether  or  not  these  reports  were  correct,  the  larger  a  corporation,  as  a 
rule,  the  higher  are  its  salaries.  With  a  small  company  one  man  is  some- 
times president,  treasurer,  and  manager,  when  he  can  do  the  work  of  all. 
If  fitted  to  produce  cheaply,  a  company  need  not  join  a  trust  to  economize 
in  salaries. 

Trust  Gains  from  Side  Lines  of  Business. — The  practice  of  engaging 
in  the  various  side  lines  of  business  that  a  large  concern  must  patronize  has 
always  been  open  to  any  who  were  prepared  to  follow  it.  It  is  probably  safe 
and  economical  when  the  side  lines  are  monopolies,  or  not  to  be  depended 
upon  under  separate  ownership,  as  in  the  case  of  the  iron  mines,  steamships, 
and  railroads  of  the  steel  trust.  The  Federal  Steel  Company  was  and  is  a 
combination  to  secure  steady  supply  of  materials,  being  composed  of  con- 
cerns not  competitive  but  in  different  and  independent  stages  of  manufacture, 
passing  from  mines  upward  toward  finished  products.  But  railroad  com- 
panies that  have  command  of  all  the  capital  and  managing  talent  they  could 
use,  do  not  build  many  of  their  own  cars  and  locomotives,  nor  manufacture 
their  own  ties  and  lumber.  The  Pennsylvania  Railroad  bought  in  1901  the 
Cambria  Steel  Company  and  the  Pennsylvania  Steel  Company — doubtless 
to  keep  out  of  the  power  of  the  steet  trust  in  buying  rails.  The  Gould  rail- 
roads were  reported  to  have  bought  the  Lackawanna  Steel  Company  for  the 
same  reason.  As  capital  in  a  side  line  must  pay  dividends  no  less  than  the 
main  capital,  and  as  the  main  business  need  have  no  more  officers  than  its 
work  keeps  busy,  the  advantage  in  having  a  side  line  would  not  ordinarily 
appear  where  that  is  not  necessary  to  keep  out  of  the  power  of  a  monopoly. 
This  practice  is  the  opposite  of  specialization,  which  is  supposed  to  be  a 


22  TJic  Plain  Facts  as  to  tJic  Trusts. 

reason  for  a  trust's  trying  to  get  rid  of  competition.  The 
company  making  the  most  and  best  goods  at  lowest  cost 
is  not  troubled  about  its  weaker  competitors.  The  worry 
is  with  them — over  what  to  do  to  meet  the  splendid 
values  offered  by  the  new  concern.  This  is  the  case 
with  the  largest  department  stores,  which  are  not  monopo- 
listic in  a  bad  way,  because  they  make  no  effort  to  buy 
out  or  driv^e  out  competitors,  but  get  the  lattcr's  trade 
without  buying  it,  simply  by  giving  the  people  better 
values. 

Loading  Down  with  Useless  Plants. — Again,  if  the  pur- 
pose of  consolidation  were  not  quick  monopoly,  but  only 
to  get  trade  by  giving  best  values,  a  trust  would  not 

characteristic  of  the  times.  To  learn  one  business  well  is  enough  for  most 
men — too  much  for  many.  Impossibility  of  finding  general  managers 
knowing  different  lines  of  business  has  been  mentioned  as  one  limit  to  con- 
solidation. As  a  rule,  where  there  is  highest  excellence  in  product,  not 
many  kinds  of  business  are  carried  on  by  one  concern.  Yet  since  the  de- 
velopment of  the  factory  system,  the  tendency  has  been  to  connect  processes 
readily  harmonized,  such  as  spinning  and  weaving.  No  doubt,  by  adding 
closely  related  processes,  as  well  as  by  other  means,  industry  has  lately 
been  advanced.  This  movement  has  been  marked  in  some  cases.  In  the 
great  shops  of  British  railways,  for  repairing  and  manufacturing,  nearly  a 
hundred  trades  are  represented.      (Webb,  Industrial  Democracy ■,  y^2>-^ 

Successful  in  Department  Stores. — The  success  of  uniting  different 
lines  in  department  stores,  which  do  not  make  goods,  but  only  sell  them, 
may  be  due  to  the  gathering  of  crowds  of  buyers,  to  the  saving  of  rent  by 
using  upper  instead  of  ground  floors,  and  to  the  fact  that  in  many  retail 
lines  the  uncertain  profit  of  the  proprietor  does  not  average  above  the  5l>ooo 
to  $5,000  salary  guaranteed  to  him  as  a  department  manager.  Besides, 
best  effort  from  him  is  often  stimulated  by  allowing  him  a  share  of  the  profits 
of  his  department,  making  him  really  a  partner. 

As  to  Saving  By-Products,  a  concern  able  to  carry  on  its  business  is 
generally  able  to  get  also  what  value  there  is  in  waste  materials,  either  by 
utilizing  them  itself  in  by-products,  or,  when  without  capital  to  do  this,  by 
locating  in  a  center  of  its  industry,  where  there  is  usually  a  market  for  waste 
materials,  at  prices  equal  to  what  they  are  worth.  The  savings  of  a  trust 
in  buying  materials,  selling  goods,  and  in  other  particulars,  are  considered 
in  Chapter  VII. 


Possibilities  for  Good  and  for  Evil.  23 

load  itself  down  with  useless  plants,  sometimes  at  high 
prices  when  the  owner  holds  out,  but  would  consider 
only  the  best  equipped  and  best  located  estabHshments.  / 
Better  goods  and  lower  prices  would  soon  get  the  trade^^ 
of  the  others  for  nothing.  If  additional  capacity  were 
needed,  new  plants  of  unequalled  equipment  would  be 
built.  A  leader  of  an  industry  seldom  wants  to  buy  an 
established  business  and  allow  pay  for  its  good  will  unless 
it  is  solidly  prosperous.  He  prefers  to  make  his  own 
good  will.  Capital  in  old  machines  and  scattered  real 
estate,  and  in  good  will  that  often  does  not  exist,  is  a 
dead  weight  to  a  concern  that  desires  to  render  its  best 
service. 

To  Cheapen  Product,  or  to  Get  Promoters'  Fees  ? — With 
many  a  trust  a  position  for  good  service  seems  not  to  have 
been  thought  of  The  whole  movement  in  some  cases 
was  evidently  to  get  big  fees  for  promoters,  and  inflated 
prices  for  plants  sold,  with  little  concern  for  the  new 
trust's  fate  after  payments  from  it  had  been  obtained. 
In  other  cases  the  motive  was  a  stronger  and  more  per- 
manent monopoly.  There  probably  are  few  trusts  that 
bought  only  first-class  property  at  fair  prices,  to  be  con- 
solidated for  the  one  purpose  of  getting  business  by  giving 
best  values.  And  if  cheapest  production  were  attained, 
there  would  be  no  need  to  lower  prices  with  a  monopoly. 
Reduction  of  cost  might  only  add  to  its  profits. 

Trusts  Seldom  Started  by  the  Uniting  Concerns. — With 
exceptions  since  1897  so  few  as  only  to  prove  the  rule, 
the  movement  to  consolidate  has  started  with  the  pro- 
moters, not  with  the  producers,  who  alone  would  be 
moved  by  desire  to  stop  cut-throat  competition  and  to 
cheapen  production.^     Selecting  a  suitable  industry,  and 

»Nettleton,  56. 


24  The  Plain  Facts  as  to  the  Trusts. 

temptingly  showing  from  the  success  of  the  sugar  trust 
what  can  be  done,  promoters  first  get  options  on  about 
three-fourths  of  the  separate  concerns,  to  obtain  the 
monopoly  necessary  to  sell  watered  stock,  and  then  with 
these  options  secure  the  assistance  of  a  group  of  bankers, 
called  underwriters.  At  an  agreed  price,  and  by  an 
agreed  time,  the  latter  contract  to  buy,  if  not  sold  to 
others,  enough  of  the  shares  and  bonds,  left  over  from 
payment  on  plants,  to  provide  working  capital  and  to 
carry  the  organization  to  completion.  About  ten  per 
cent  of  the  securities  subscribed  for  by  the  bankers  they 
take  and  pay  for  at  once,  that  amount  of  cash  being 
sufficient  for  immediate  payments.  The  pay  of  the 
bankers  is  usually  understood  to  be  a  cash  return  of 
about  five  per  cent  on  the  total  stock  they  subscribe  for, 
of  which,  if  it  sells  well,  they  may  not  be  called  on  to 
take  more  than  the  original  ten  per  cent  [World's 
Work)} 

'  The  Profits  to  Underwriters  of  the  Steel  Corporation,  as  shown  in 
its  report  issued  in  January,  1902,  were  more  than  five  times  five  per  cent. 
They  contracted  to  pay  ^200,000,000  on  demand  at  any  time  within  fif- 
teen months,  but  as  the  stock  sold  well,  they  were  called  on  to  pay  only 
^25,000,000,  advanced  as  working  capital,  and  about  ^3, 000, 000  for 
expenses.  Within  ten  months  the  transaction  with  them  was  closed. 
They  received  as  compensation  649,987  shares  of  preferred  stock  and  an 
equal  amount  of  common  stock.  Taking  $90  as  recent  market  value  for 
the  preferred,  and  $40  for  the  common,  they  now  have  in  their  stock,  if 
not  previously  sold,  a  value  of  ^84,500,000;  deducting  the  ^28,000,000 
advanced,  leaves  $56,500,000  as  profit,  besides  their  regular  dividends. 
From  this  profit  J.  P.  Morgan  &  Co.  are  understood  to  have  charged  twenty 
per  cent  for  managing  the  underwriting  syndicate,  and  besides  they  were 
its  heaviest  subscribers.  Profits  in  this  case  were  unprecedented,  as  was 
the  whole  enterprise.  Underwriters  have  realized  great  gains  in  suc- 
cessful cases,  because  of  the  risk,  and  because  few  are  prej^ared  to  advance 
and  guarantee  the  enonnous  sums  required.  Above  figures  are  taken 
from  New  York  Post  article  in  Public  Opinion  of  Feb.  13,  1902,  As  to 
underwriting,  see  WorhV s  Work,  Sept,  1901. 


Possibilities  for  Good  and  for  Evil.  25 

Who  Bears  the  Loss? — After  the  trust  has  been  organ- 
ized and  turned  ov^er  to  its  officers,  the  promoters  and 
bankers  sell  out  the  stock  that  has  fallen  to  them,  and 
are  ready  to  form  another  trust.  Not  buying  for  them- 
selves, they  can  afford  to  be  reckless  in  offering  high 
prices  for  plants,  in  issuing  stock,  and  in  taking  great 
fees  for  their  services.  Uniting  concerns  are  secured 
against  loss  by  high  prices  received  for  plants.  Buyers 
of  stocks  are  secure  also  if  monopoly  prices  can  long  be 
exacted  for  a  full  output  of  products.  All  the  loss  then 
falls  on  consumers.  But  very  probably  most  of  it  even- 
tually will  fall  on  smaller  investors,  who  bought  stock 
trusting  in  the  judgment  of  the  underwriting  bankers, 
many  of  whom,  as  cashiers  and  directors,  are  believed 
to  have  been  influenced  by  large  payments  of  stock,  and 
even  of  cash,  to  themselves  as  individuals.  Here  there 
was  serious  risk  to  the  solvency  of  the  banks,  and  a 
deplorable  lowering  of  morals  in  highest  circles  of 
business.^ 

Amount  of  Gain  to  Promoters. — In  one  of  the  whisky 
trusts,  testimony  seemed  to  show  that  for  every  $100,- 
000  of  cash  or  property  put  in  by  a  concern  joining,  it 
was  issued  preferred  stock  for  that  sum,  and  also  the 
same  amount  of  common  stock  as  a  bonus  or  premium. 
But  the  underwriting  bankers  got  more,  $100,000  in  pre- 
ferred and  ^150,000  in  common.  The  promoters  re- 
ceived only  $150,000  of  common,  making  in  all,  for  each 
;^  1 00,000  of  real  capital,  $600,000  of  stock  to  pay  divi- 
dends upon  by  means  of  monopoly  power.  Giving  a 
share  of  common  stock  free,  with  every  share  of  pre- 
ferred stock  paid  for  in  cash  or  solid  property,  seems  to 
have  been  the  general  custom.     Judge  W.  H.  Moore  of 

•  Jenks,  q6. 


26  TJic  Plain  Facts  as  to  the  Trusts. 

Chicago,  the  promoter  who  organized  the  tin-plate  trust, 
buying  the  plants  as  cheaply  as  he  could,  and  paying  all 
bonuses,  "divvies,"  and  legal  fees,  is  believed  to  have 
received  the  round  sum  of  ^10,000,000  in  common  stock 
for  his  services  and  expenses.  At  the  market  price  then 
ruling  for  the  common  stock,  this  ;^  10,000,000  was  esti- 
mated to  be  worth  ;^4,ooo,ooo  in  cash.  For  the  1^46,- 
000,000  of  stock  issued  by  the  tin-plate  trust,  it  is  believed 
to  have  received  $4,000,000  in  cash  for  running^  capital, 
and  plants  on  which  the  option  prices  were  understood 
to  aggregate  $18,000,000.  In  a  later  combination  of 
four  whisky  trusts  into  one,  the  stock  falling  to  pro- 
moters and  underwriters,  if  sold  quickly,  would  have 
given  them  for  their  services  a  net  sum  of  from  $3,000,- 
000  to  $4,000,000.  But  large  sales  of  stock  would 
have  lowered  price,  which  in  some  cases  fell  in  six  months 
to  a  point  so  low  as  barely  to  have  sufficed  to  carry  out 
promoters'  contracts.^  To  dispose  of  large  quantities  of 
stock,  it  was  therefore  necessary  to  offer  it  gradually  in 
small  lots.  A  leading  promoter  was  believed  to  have 
received,  within  three  years,  from  $30,000,000  to  $40,- 
000,000  in  stocks,  realizing  for  them  in  cash  about  $10,- 
000,000.  A  St.  Louis  man  sued  for  $1,875,000  as  his 
half  of  the  profits  in  a  case  of  promotion  claimed  to  have 
been  taken  from  him  and  entrusted  to  others.' 

Natural  Safeguards  Against  Monopoly. — There  are 
some  natural  .safeguards  against  the  evils  of  trusts.  If 
these  safeguards  are  sufficient,  the  evils  need  not  cause 
concern. 

Hard  Times  Squeeze  Out  the  Water. — Those  trusts  that 
have  most  water  in  their  capital  —  the  least  amount  of 

'Jenlcs,  90,  94. 
2  Collier,  211. 


Possibilities  for  Good  and  for  Evil.  27 

solid  property  in  proportion  to  tlicir  total  stock  —  will 
scarcely  hold  their  monopoly  power  through  a  period  of  1 
hard  times,  which  are  nature's  cure  for  fever  in  the  busi-] 
ness  body,  allaying  extravagance  in  hope  and  effort,  anc 
bringing  back  a  sober  realization  of  the  limitations  of 
this  mortal  life.  If  a  trust's  net  earnings  then  are  not 
sufficient  to  pay  interest  on  bonds  issued,  the  mortgage 
will  be  foreclosed  and  the  plants  sold,  leading  perhaps  to 
separation  into  competitive  concerns  as  before.  If  inter- 
est on  bonds  leaves  too  little  for  dividends  on  stock,  with 
no  prospect  of  raising  earnings  to  a  fair  dividend  rate,  the 
stock  will  fall  in  value,  credit  to  borrow  will  sink,  repairs 
to  equipment  will  fall  behind,  and  new  competitors  not 
burdened  with  old  debts  may  soon  become  the  leaders 
of  the  industry.  The  rope  trust,  in  the  summer  of  1901, 
was  said  to  be  doing  very  little  more  business  than  each 
of  two  or  three  rivals,  and  in  the  early  fall  it  failed,  los- 
ing ;^487,ooo  in  the  past  year.^ 

•Uncertain  Value  of  Trust  Stocks. — The  high  dividends  paid  by 
trusts  in  the  spring  of  190X,  an  average  for  47  trusts,  not  including  the 
Standard  Oil  Company,  of  7.44  per  cent  on  par  value  and  13.6  per  cent 
on  market  value,  indicates  that  their  present  earning  power  is  considered 
temporary,  which  is  also  shown  by  the  fact  that  higher  interest  on  loans 
must  be  paid  when  industrials  are  deposited  as  collateral  security.  With 
more  reliable  railroad  stocks  the  dividend  rate  on  market  value  (which 
buyers  are  not  afraid  to  raise)  ranges  from  4  to  8  per  cent,  averaging  4.85 
per  cent  in  the  spring  of  1901  with  37  roads,  including  the  best.  The  ex- 
tent of  present  monopoly  gains  is  indicated  by  these  figures,  taken  from 
Charles  R.  Flint's  article  in  the  North  American  Revieiu  for  May,  I901. 
Despite  over-capitalization  for  ordinary  times  without  monopoly,  these 
trusts  are  under-capitalized  in  relation  to  the  dividends  mentioned.  Invest- 
ors, considering  these  temporary,  do  not  raise  market  value  accordingly. 
Overcapitalization  is  corrected  by  falling  market  value  as  soon  as  regular 
earning  power  is  learned  by  investors  from  experience.  Henry  Clews,  in 
recommending  railroad  stocks  instead  of  industrials,  says  that  by  bankruptcy 
and  reorganization  railroad  earning  power  has  been  brought  down  to  a  solid 
basis,  while  most  trusts,  started  under  best  chances,  have  not  thus  been 


28  TJic  Plain  Facts  as  to  the  Trusts. 

Dull  Times  Will  Not  Remove  Strong  Monopolies. — But 
strong  monopolies,  like  the  sugar  and  oil  trusts,  are  too 

pruned  down  by  adversity.  On  December  7,  1901,  the  preferred  and  com- 
mon stock  of  50  industrials,  amounting  at  par  to  $2,463,553,708,  had  been 
scaled  down  in  market  value  to  a  total  of  $1,506,743,990.  (March 
Atlantic. ) 

Is  Par  Value  of  Any  Importance  ? — Whether  the  par  value  of  each 
of  a  company's  10,000  shares  were  put  at  ?lo  or  $100,  making  its  capital- 
ization $100,000  or  $1,000,000,  would  be  of  little  consequence  if  the 
statement  required  by  the  stock  exchange,  before  listing  shares,  showed 
fairly  the  company's  dividend-earning  capacity  per  share,  and  if  the  actual 
facts  reached  all  investors.  Market  price  would  then  become  such  a  sum 
as  at  proper  interest  would  make  the  dividend.  But  many  investors,  not 
being  experts  in  industry  and  finance,  cannot  be  expected  to  find  out  soon 
the  actual  facts,  and  they  reasonably  consider  par  value,  upon  which  divi- 
dend rate  is  based,  and  which  is  supposed  to  represent  the  estimate  of 
organizers  as  to  what  the  business  will  be  worth.  For  this  reason  stock 
watering,  which  usually  includes  deception,  is  resorted  to — to  sell  stocks 
for  more  than  they  are  worth,  and  thus  to  provide  profits  for  promoters,  who 
by  the  chance  to  water  stock  were  attracted  into  the  trust-forming  business. 
Stock  watering  would  not  occur  if  law  secured  to  the  public  a  just  inventory 
of  assets  and  prospects.  Inexperienced  investors  taking  the  safest  course 
do  not  buy  new  stocks  at  all.  Issue  of  watered  stock  tempts  directors  to 
earn  dividends  by  monopoly  prices,  or  to  pay  them  unlawfully  out  of  capital, 
less  perhaps  to  get  the  dividends  themselves  than  because  if  not  paid  the 
stock  may  fall  in  value  before  they  sell  out,  or  credit  may  sink  and  compe- 
tition arise. 

Investors  to  Blame  Also. — For  over-capitalization  promoters  are  to 
blame  only  so  far  as  they  deceive  or  unduly  influence  investors.  The  latter 
also  are  in  fault  in  their  reckless  buying,  depending  on  monopoly  gains  in 
industries  not  justly  to  be  monopolized.  Earning  power  is  the  proper  basis 
of  value,  even  though  it  makes  the  good  will  worth  more  than  the  plant. 
The  good  will  of  the  National  Cordage  Company  was  appraised  in  1893  at 
$2.S, 000,000.  The  trademark  and  business  of  a  popular  medicine  built  up 
by  advertising,  might  be  worth  a  million,  with  all  tangible  property  worth 
less  than  a  tenth  of  that  sum.  A  new  monopoly,  likely  to  last,  would 
rightly  sell  for  a  great  sum  if  it  had  no  property  at  all,  nor  any  business  yet 
established,  like  a  street  railway  franchise.  The  value  of  such  a  monopoly 
franchise  would  be  such  a  sum  as  at  about  6  per  cent  would  yield  its  net 
earnings.  By  making  a  monopoly  trust's  capital  large  enough  to  reduce  its 
hifjh  income  rate  to  that  of  ordinary  dividends,  monopoly  gains  are  taken 
out  by  the  first  owners,  who  have  a  right  to  do  so  if  they  make  no  false 


Possibilities  for  Good  and  for  Evil.  29 

rich  in  substantial  capital,  and  too  secure  in  their  mon- 
opolistic position,  to  give  way  in  dull  times.  These  and 
similar  trusts  held  their  power  during  the  depression  from 
1893  to  1897,  while  the  cordage,  iron  safe,  and  other 
combinations  failed,  and  when  reorganized  were  not  in  a 
position  to  harm  competitors.  What  other  natural  forces 
are  there,  besides  dull  times,  to  save  the  people  from  an 
exaction  of  tribute  to  monopoly  ?  Two  other  forces  to 
check  monopoly  are  worthy  of  consideration. 

A  Moderate  Price  May  Yield  Most  Profit. — First,  a 
monopoly  can  make  more  aggregate  profit  from  a  mod- 
erate selling  price,  with  large  consumption  of  its  com- 
modity, than  from  a  high  price,  which  leads  to  decreased 
sales,  and  to  use  of  other  commodities  as  substitutes. 
But  to  raise  price  is  the  purpose.  At  all  times  perhaps, 
except  when  engaged  in  killing  competition  by  means  of 
sales  without  profit,  or  when  making  a  show  of  good  to 
the  public,  a  monopoly  will  charge  a  price  higher  than 
it  would  be  if  no  monopoly  existed. 

There  are  Few  Sellers  Who  "Would  Not  Raise  a  Price  if 
they  knew  the  buyer  would  pay  the  excess  and  continue 
buying.     So  a  buyer  must  do  with  a  needed  commodity 

pretenses,  and  buyers  of  stock  get  only  the  usual  rate  of  dividends  on  their 
investment.  But  when  earnings  temporarily  at  the  highest  point  are  con- 
sidered as  6  or  8  per  cent  of  the  stock's  value,  the  latter  is  so  inflated 
that  a  heavy  fall  is  inevitable.  Of  the  many  British  coal  and  iron 
industries  converted  into  corporations  at  high  valuation  in  the  great  pros- 
perity of  1S72,  "most  of  those  that  did  not  speedily  disappear  have  been 
derelicts  ever  since ;  and  some  of  them  only  just  managed  to  earn  profits 
in  the  piping  times  of  1900."  [Boston  Transcript,  Sept.  I901.)  In 
Germany,  where  trusts  are  numerous,  business  stagnation  began  early  in 
I901.  By  tariff  duties  and  subsidies,  production  there  has  been  stimulated 
towards  the  point  of  intoxication.  The  large  scale  on  which  German 
trusts,  especially  the  electrical,  have  taxed  the  people  by  inducing  them  to 
buy  inflated  stocks,  and  by  forcing  towns  into  contracts  for  things  not 
needed,  is  described  in  The  Forum  for  March,  1902. 


30  The  Plain  Facts  as  to  the  Trusts. 

when  he  cannot  find  another  seller  asking  less.  But 
however  strong  the  demand,  the  fact  that  a  buyer  can 
try  other  sellers,  some  of  whom  may  weaken  in  price, 
has  a  tempering  effect  on  the  charges  of  a  seller  who 
would  like  to  have  more  customers,  which  desire  is  true 
of  practically  all  sellers.  In  the  case  of  a  monopoly 
trust,  there  is  no  other  seller  that  can  supply  the  goods 
quickly,  and  equal  in  quality  and  quantity. 

Can  Add  Much  to  Prices  of  Necessaries. — Therefore, 
the  price  charged  by  an  established  monopoly  would 
tend  to  be  as  high  as  consumers  would  pay  without 
noticeably  stinting  their  consumption.  With  necessaries 
they  might  soon  be  trained  to  bear  a  price  pretty  high. 
A  sudden  change  in  the  price  of  hard  coal  from  $6.50  to 
^8  a  ton  would  cause  many  people  to  turn  from  it  to  soft 
coal.  But  if  the  price  were  raised  graduaUv.  not  all  in 
one  season,  consumers  would  soon  become  accustomed 
to  the  higher  prices,  and  would  use  nearly  as  much  hard 
coal  as  before.  Many  staple  commodities,  such  as  sugar, 
soap,  and  oil,  were  used  just  as  freely  by  most  people  a 
few  years  ago  as  at  present,  though  their  prices  were  then 
a  quarter  higher.  Potatoes  are  used  nearly  as  freely  at 
50  cents  a  bushel  as  at  30  cents,  owing  to  habit,  not  be- 
ing an  important  item  of  expense.  A  price  would  not 
seem  high  after  it  had  been  paid  for  a  while,  especially 
if  the  trust  allayed  opposition  by  calling  attention  to  some 
slight  improvement  of  quality  and  increase  of  wages. 

Various  Methods  of  Monopoly  Gain. — Hence,  with  many 
commodities,  the  tendency  to  stint  consumption  would 
not  long  keep  down  a  monopoly  price.  A  trust  would 
not  act  so  unscrupulously  to  maintain  its  monopoly  unless 
a  considerably  higher  price  could  be  obtained.  An  ad- 
dition to  price  that  does  not  reduce  sales  is  all  clear  gain 


Possibilities  for  Good  and  for  Evil.  3 1 

when  not  based  on  increased  cost  of  labor  or  material. 
With  a  selling  price  of  10  cents  for  an  article  costing  9 
cents  to  produce,  a  raise  of  price  to  1 1  cents  doubles  the 
profit.  There  would  be  reason  for  lowering  price  to  in- 
crease sales  where  crop  failure  or  dull  times  had  lowered 
ability  to  buy  ;  though  in  extra  good  times  price  could 
be  carried  as  far  the  other  way.  Articles  monopolized 
by  patent  are  usually  sold  at  a  low  price  in  a  country 
where  people  earn  little,  and  at  a  high  price  where  people 
will  pay  more.  Monopoly  may  sometimes  be  strength- 
ened by  monopolizing  substitutes  also.  British  railroads 
have  bought  many  competing  canals,  while  gas  and  elec- 
tric companies  sometimes  unite.  A  street  car  company 
was  said  to  have  opposed  better  paving  for  fear  cabs 
would  be  more  used.  By  keeping  price  everywhere  just 
high  enough,  so  as  not  to  drive  buyers  to  substitutes, 
nor  to  start  competition,  nor  to  provoke  hostile  legisla- 
tion, a  monopoly  could  long  absorb  wealth  that  people 
would  otherwise  save,  or  use  in  buying  additional  goods. 
The  wire  nail  pool  in  1895-96,  known  to  be  temporary, 
reaped  its  gains  quickly,  holding  for  a  year  at  $3  per 
hundred  a  price  raised  from  $1.45.^  The  American  ice 
monopoly  in  New  York  in  1900,  though  fitted  for  some 
permanence,  exerted  its  power  so  outrageously,  doubling 
the  price  of  ice  in  hot  weather,  and  getting  city  officials 
and  judges  as  stockholders,  that  a  storm  of  public  indig- 
nation invoked  the  law,  and  gave  competition  a  foothold 
at  once. 

Price  of  Luxuries  Might  be  Lowered  Considerably. — 
A  trust  might  lower  price  materially  in  the  case  of  com- 
forts and  luxuries,  with  which,  unlike  necessaries,  lower- 
ing price  causes  a  decided  increase  of  consumption.     But 

*  Jenks,  62. 


32  The  Plain  Facts  as  to  the  Trusts. 

this  fact  is  not  important,  because  a  trust  can  seldom 
control  supply  of  a  luxury,  aside  from  a  few  things  such 
as  diamonds,  produced  from  monopolized  mines.  Com- 
petition arises  too  easily  with  finished  goods,  which  are 
too  far  removed  from  limited  source  of  materials.  If 
fashionable  articles,  necessarily  sold  at  a  high  profit, 
could  be  monopolized,  their  price  may  not  be  higher. 
Whether  produced  by  one  or  by  many,  their  high  price 
is  fixed  by  popularity,  and  by  necessity  of  selling  quickly 
before  their  value  disappears.^ 

High  Price  Brings  Competition. — Second,  if  a  selling 
price  yields  a  profit  much  above  the  cost  of  production, 
owners  of  uninvested  capital  are  induced  by  the  high 
profit  to  enter  the  business,  thus  increasing  competition 
and  lowering  prices.  In  this  way,  by  increase  of  supply, 
price  is  lowered  where  no  monopoly  exists. 

But  Not  auickly  When  a  Trust  Must  be  Fought. — But 
a  powerful  trust  understands  all  this  very  well.  There 
is  plenty  of  capital  awaiting  investment,  but  not  much  to 
be  spent  in  fighting  a  trust.  While  the  enormous  profits 
of  each  of  many  different  monopolies  must  be  invested, 
above  the   personal    spending    of    stockholders,   profits 

'  A  Trust  Improving  a  Backward  Industry  Would  Lower  Price. — 

In  an  industry  previously  carried  on  crudely  by  small  and  backward  con- 
cerns, a  progressive  monopoly,  largely  reducing  cost  of  production,  might 
find  a  price  materially  lower  to  be  most  profitable.  (Marshall).  In  that 
case,  as  in  all  others  where  it  has  a  monopoly  solely  because  it  serves  the 
public  best,  a  trust  is  to  be  welcomed.  But  a  concern  already  producing 
at  the  lowest  possible  cost  might  make  highest  profit,  not  by  forming  a 
trust,  but  by  allowing  weak  producers  to  stay  in  business ;  because  need  of 
their  product  would  keep  price  for  all  above  their  high  cost  of  production. 
There  is  no  need  to  buy  out  the  weak  to  concentrate  production  in  the  best 
plants  if  their  superiority  is  considerable.  If  the  strong  concerns  produce 
enough  to  lower  price,  the  weak  will  stop  of  themselves.  The  claim  of 
the  trust  that  it  benefits  society  by  producing  from  the  best  plants  will  not 
pass  as  a  reason  for  monopolistic  organization. 


Possibilities  for  Good  and  for  Evil.  33 

gained  so  successfully  in  monopoly  will  seldom  be  in- 
vested in  competition  if  monopolistic  fields  are  accessible. 
Into  a  business  closely  controlled  by  a  trust,  a  monop- 
olist of  vast  capital  might  buy  admission  at  quicker  and 
larger  profit  than  by  starting  as  a  competitor  and  con- 
quering a  foothold.  Capitalists  of  less  wealth  are  dis- 
posed to  follow  his  example,  buying  shares  in  corporations 
already  strong.  Besides,  against  natural  monopolies,  such 
as  the  best  mines,  or  the  railway  in  the  best  streets,  no 
amount  of  capital  can  contend. 

Monopolists  do  Not  Fight  One  Another,  as  a  rule. 
Not  only  has  some  consolidations  taken  place  in  most 
lines  of  business  to  be  effectually  monopolized,  but  a 
number  of  the  largest  separate  monopolies  have  fallen 
under  control  of  Messrs.  Morgan  and  Rockefeller  and  a 
few  associates.  These  include  the  oil,  anthracite  coal, 
tin-plate,  wire,  and  steel  trusts,  the  best  iron  mines  and 
lake  fleets,  ocean  lines  for  which  a  subsidy  is  asked  from 
Congress,  the  important  railroads,  divided  into  five  or  six 
consolidated  groups,  and  now  the  leading  banks  of  New 
York  and  Chicago.  Profits  made  from  street  car  and 
telephone  monopolies  in  one  city  are  invested  in  the 
same  monopolies  in  other  cities,  until  many  of  the  best 
of  these  properties  have  fallen  into  a  few  hands. 

Expert  Ability  Scarce. — The  greatest  financiers  there- 
fore, with  the  leading  banks  they  control,  are  already 
absorbed  in  monopolies.  There  is  likely  to  be  little 
competition  among  them  until  the  possibilities  of  monop- 
oly are  exhausted,  a  consumm.ation  perhaps  far  in  the 
future.  The  ablest  superintendents  and  experts  are 
probably  absorbed  also.  Though  capital  cannot  now  be 
cornered  in  wealthy  America,  capacity  to  conduct  a 
large  business  may  be  cornered  to  a  considerable  extent. 
3 


34  The  Plain  Facts  as  to  the  Trusts. 

Men  possessing  this  capacity  in  largest  measure  are  high- 
salaried  officials  and  employees  of  the  trust,  in  line  of 
promotion  to  still  better  positions.  The  best  of  these 
cannot  usually  be  hired  away  from  the  trust  by  tempt- 
ing offers  from  new  ventures  less  likely  to  be  permanent. 
Former  Experience  of  Little  Use. — Men  formerly  en- 
gaged in  the  business,  in  these  days  of  rapid  change, 
cannot  return  to  it  after  a  few  years  and  be  equally  com- 
petent with  those  whose  experience  has  been  unbroken. 
Experience  ten  or  twenty  years  old  is  often  little  better 
than  no  experience  at  all.  The  fact  that  many  of  the 
trusts  have  managed  their  business  well,  saving  in 
every  way,  improving  and  cheapening  product,  and  ex- 
tending sales  at  home  and  abroad,  shows  that  they  have 
guarded  their  monopoly  by  not  provoking  competition. 
But  the  longer  they  hold  the  field,  the  weaker  poten- 
tial competition  becomes.  Changing  methods  may  ren- 
der former  competitors  unable  to  engage  in  the  business, 
placing  the  trust  firmly  in  the  saddle,  and  weakening  its 
incentives  to  progress.^ 

^  Battles  of  the  Strong. — The  hope  of  the  people  for  competition  able 
to  cope  with  the  present  unregulated  monopolies,  lies  with  a  few  independ- 
ent capitalists  of  the  first  grade,  whether  from  experience,  natural  ability, 
or  both,  who  succeed  in  whatever  they  undertake,  and  who  appear  to  like 
a  contest  with  a  trust.  Arbuckle  Brothers,  of  New  York,  for  many  years 
leading  coffee  roasters,  took  up  sugar  refining  in  1898,  when  the  trust  had 
put  prices  high,  and  have  since  seemed  to  be  about  as  strong  as  the  trust. 
Their  competition,  with  that  of  the  Claus  Doscher  refinery,  was  for  a  time 
valuable  to  consumers,  making  the  margin  between  cost  of  raw  sugar  and 
price  of  refined  "  very  decidedly  lower  "  than  when  the  trust  had  practical 
control  of  the  market ;  though  by  1901  the  price  had  been  raised  to  yield 
refiners  a  good  profit,  the  trust  evidently  having  found  that  the  Arbuckles 
could  not  be  driven  out.  The  Carter  White  Lead  Company,  of  Chicago, 
has  competed  successfully  with  the  lead  trust.  H.  C.  Frick  has  been 
arranging  to  start  a  great  steel  industry  east  of  Chicago.  It  was  reported 
in  October  from  Youngstown,  O.,  that  experienced  steel  makers  who  had 
sold  their  stock  in  companies  uniting  with  the  Steel  Corporation,  would 


Possibilities  for  Good  and  for  Evil.  35 

The  Club  of  the  Giant. — Besides,  hiring  experts  is  a 
secondary  matter  compared  with  bearing  up  under  the 
attacks  by  which  a  trust  clubs  a  competitor  out  of  its 
field.  The  Standard  Oil  Company's  old  practice  of  in- 
fluencing railroads  to  charge  its  competitors  higher  freight 
rates  is  not  now  resorted  to  so  extensively  as  formerly. 
But  it  is  still  a  grave  abuse,  and  the  law  to  prevent  it  is 
inadequate.^ 

join  soon  with  independents  and  form  another  gigantic  steel  trust.  When 
independent  concerns  appear  early,  before  the  trust  is  strongly  established, 
its  monopoly  may  not  become  important. 

Peace  May  be  Monopoly. — Of  course  there  is  always  a  chance  that 
the  independent  concern  may  be  bought  out  by  the  trust,  so  long  as  a 
monopoly  seems  practicable  ;  and  after  forcing  a  peace  a  strong  new  con- 
cern may  act  with  the  trust  in  a  monopolistic  agreement,  as  the  independent 
sugar  refiners  are  now  apparently  doing.  The  Spreckels  sugar  refineries, 
built  in  1889  to  get  the  trust's  high  prices,  were  bought  by  it  after  a  two 
years'  fight.  High  prices  by  the  wire  trust  have  lately  caused  many  new 
rod  mills  to  be  built — in  some  cases  to  force  the  trust  to  buy  them.  The 
Pure  Oil  Company,  which  is  considered  able  to  realize  all  economies  of 
large  production,  is  said  to  have  placed  its  stock  in  the  hands  of  a  voting 
trust,  to  keep  its  stockholders  from  selling  to  the  Standard,  which  has  long 
blocked  its  effort  to  complete  its  pipe  line  a  short  distance  in  New  Jersey 
to  the  seaboard.  As  people  do  business  for  profit,  agreement  or'combina- 
tion  may  be  the  rule  where  competitors  are  few.     (  The  Fo>um,  April,  1901. ) 

Peace  Thus  Maintained  Keeps  the  Public  Better  Supplied  in  the 
long  run  than  competition  intended  to  destroy.  Where  the  trust  is  able 
to  supply  all  the  demand,  a  start  by  a  strong  competitor  duplicates  plant, 
necessitating  idle  capacity  and  wasting  capital  unless  the  new  plant  has 
improvements,  or  is  soon  to  be  required  by  increasing  demand.  Combina- 
tion, then  likely  to  come,  must  take  a  lower  profit  rate  by  reason  of  un- 
necessary capital.  The  strongest  competition  to  a  trust  is  that  of  another 
related  trust  which  adds  the  former's  business  as  a  side  line  to  its  own, 
with  its  main  line  to  depend  upon.  This  was  partly  the  case  with  the 
Arbuckles.  Secure  possession  of  markets  in  foreign  lands,  and  in  isolated 
home  districts,  besides  various  other  advantages,  makes  defeat  and  loss 
probable  in  a  contest  with  such  a  monopoly  as  the  Standard,  so  long  as 
trusts  are  allowed  by  law  to  resort  to  their  cut-throat  methods  for  killing 
competition. 

'  The  Standard's  Rebates. — For  a  number  of  years  the  .Standard  trust 
not  only  secured  lower  freight  rates  for  itself,  but  the  excess  sums  paid  by 


36  TJic  Plain  Facts  as  to  the  Trusts. 

Other  Methods  of  Attack  have  been  common  with  trusts. 
One  is  to  induce  persons  from  whom  materials  are  bought 
to  refuse  to  sell  to  an  anti-trust  competitor,  who  conse- 
quently may  be  unable  to  get  materials  to  advantage. 
For  a  while  Barnhart  Brothers  &  Spindler  had  to  send 
to  Germany  to  buy  strip  brass  to  make  printers'  rule, 
because  the  type  trust  had  thus  cornered  the  American 
supply  (bought  up  all  of  it).^  Sometimes  a  trust  re- 
quires a  dealer  to  buy  from  it  all  the  styles  of  an  article 

its  competitors  in  their  higher  rates  were  turned  over  to  the  trust  by  the 
railroads.  An  official  of  the  Pennsylvania  road,  who  afterwards  became 
its  president,  testified  before  a  New  York  legislative  committee  in  1 88 1 
that  in  eighteen  months  the  Standard  combination  had  received  such 
rebates  from  the  railroads  to  the  amount  of  $10,000,000.  By  such  a  proc- 
ess, varied  to  suit  conditions,  competition  from  independent  oil  refiners 
was  secretly  strangled.  J.  F.  Hudson,  in  his  book.  The  Railways  and  the 
Republic,  describes  these  discriminations  in  a  chapter  entitled  "  The 
History  of  a  Commercial  Crime." 

'  Cornering  Tin-Plate  Machinery. — "  Specific  testimony  seems  to  make 
it  clear  that  this  practice  prevails" — securing  contracts  from  producers  of 
materials  and  machinery  used  by  a  trust  not  to  sell  to  its  competitors.  (  U. 
S.  Labor  Bulletin  No.  29,  page  674.)  In  October,  1901,  the  Pittsburgh 
Post  (quoted  in  The  Outlook  of  Oct.  26)  published  the  information  that  the 
Steel  Corporation,  intending  to  depend  solely  on  offering  good  values,  had 
decided  to  discontinue  the  contracts  of  this  kind  made  with  makers  of  their 
machinery  by  two  of  its  constituent  trusts — the  tin-plate  and  the  sheet  steel 
companies.  To  secure  these  contracts,  some  of  which,  in  October,  still 
covered  from  two  to  three  and  a  half  years,  the  machinery  makers  were 
paid  cash  subsidies  aggregating  "somewhere  near  ^1,500,000  annually"; 
and  the  subsidies  were  increasing,  because  new  firms  starting  to  make  the 
machinery  had  to  be  paid  likewise  to  keep  competitors  from  being  equipped. 
The  Steel  Coi-poration  is  commended  for  stopping  this  illegal  monopolistic 
practice,  as  for  its  issue  of  reports,  telling  its  60,000  stockholders  and  the 
public  many  facts  as  to  its  business.  Its  policy  of  not  using  its  power  to 
raise  prices  has  been  compared  with  the  policy  of  the  copper  trust,  whose 
excessive. prices  have  checked  consumption  and  caused  loss  to  itself.  It 
is  hoped  that  the  good  example  of  the  steel  tnist,  in  taking  the  public 
into  its  confidence,  will  be  followed  by  other  trusts.  Indications  are  that 
some  others  will  do  so  willingly,  to  prove  their  soundness  to  the  investing 
public. 


Possibilities  for  Good  and  for  Evil.  37 

he  handles,  and  will  not  sell  to  him  if  he  helps  a  com- 
petitor by  handling  his  anti-trust  goods.  The  trust's 
goods  being  the  best  known  and  most  demanded,  a  dealer 
cannot  well  carry  on  business  without  them.  A  milder 
and  more  usual  method  of  influencing  dealers  is  to  allow 
a  rebate  to  those  who  prove  they  have  not  bought  anti- 
trust goods.  A  moderate  payment  of  this  kind  for  all 
one's  custom,  in  view  of  the  costs  of  selling,  seems  not 
unreasonable,  and  has  been  upheld  by  courts.^ 

Buying-  up  the  Patents  in  a  business  is  a  means  of 
strengthening  some  monopolies — not  always  to  use  the 
patents,  but  to  keep  them  from  competitors.  The 
Western  Union  Telegraph  Company  has  long  been  a 
purchaser  of  electrical  patents.  Concerns  are  some- 
times bought  that  own  secret  processes,  which  are  the 
same  as  patents  in  effect.  And  usually  the  heaviest 
blow  of  all  a  new  competitor  must  bear  is  the  old  prac- 
tice of  selling  in  his  territory  for  less  than  a  fair  profit, 
while  reaping  full  profits  elsewhere,  until  by  thus  ex- 
hausting his  capital  his  competition  is  stifled. 

'This  is  further  discussed  in  Chapter  VI. 


CHAPTER    III. 

KINDS    OF    MONOPOLIES. 

Natural  and  Artificial  Monopolies. — All  the  above  de- 
scribed means  of  keeping  strong  competition  out  of  a 
monopolized  field  may  be  resorted  to  by  trusts,  or  arti- 
ficial monopolies — those  formed  by  buying  up  all  the 
valuable  patents  and  plants  in  one  industry.  Competi- 
tion is  thus  prevented  from  removing  imposition  on  the 
public.^  But  without  these  a  natural  monopoly  may 
often  hold  its  field  securely. 

Railroads  and  Street  Car  Lines. — A  railroad  company 
occupying  the  best  route  between  two  cities  possesses  a 
natural  monopoly  of  the  best  means  for  supplying  trans- 
portation, especially  when  it  has  also  in  each  city  the 
most  central  station.  No  other  company  can  compete 
for  business  with  equal  chances — can  offer  the  same 
grade  of  service.  It  has  an  absolute  monopoly  of  rail 
transportation  at  stations  not  reached  by  other  lines.  A 
street  car  company  in  a  city  possesses  a  similar  monopoly. 
Its  franchise  gives  it  exclusive  use  of  the  best  routes  ; 
and  its  service  can  not  be  supplied  from  elsewhere,  but 
must  be  used  in  connection  with  its  plant.     The  latter 

'  A  Capitalistic  Monopoly  is  another  name  for  a  trust  or  artificial  mon- 
opoly, meaning  that  it  keeps  down  competition  by  its  possession  of  larger 
capital,  finer  equipment,  better  established  business,  and  abler  management. 
The  trusts,  though  artificially  combined,  are  usually  strengthened  by  con- 
nection with  legal  or  patent  monopolies,  and  with  natural  monopolies  in 
ownership  of  mines  and  in  discrimination  by  railroads.  As  to  whether  a 
capitalistic  mono]ioly  can  long  exist  entirely  unaided  by  natural  or  legal 
monopolies,  will  he  considered  in  Chapters  VII.  and  IX. 

3S 


Kiiids  of  Monopolies.  39 

is  a  characteristic  of  other  service  monopoHes,  A  large 
city  may  have  non-competing  street  car  lines,  occupying 
different  districts. 

A  Gas  Company  also  has  a  natural  monopoly.  In  its 
case  there  is  room  for  more  pipes,  in  locations  perhaps 
equally  good  ;  but,  like  steam  and  street  railways,  it  can 
supply  more  customers  without  expense  for  equipment, 
while  a  competitor  must  make  a  large  investment  in 
a  new  plant.  As  there  may  not  be  enough  business 
to  yield  a  profit  on  two  plants,  and  as  enlarging  the 
one  would  be  far  less  costly  than  building  another,  a 
second  can  seldom  be  built  with  advantage  to  the  pub- 
lic. Sometimes  a  second  is  built  to  force  the  first  com- 
pany to  buy  it.  Real  competition  rarely  lasts  long  in 
any  of  these  cases.  Sometimes  the  two  companies  agree 
on  prices  and  divide  the  field  ;  sometimes  price  cutting 
by  the  old  company  forces  the  second  into  consolida- 
tion with  it,  or  the  new  company  may  build  better  and 
absorb  the  old.  The  latter  outcome  has  seemed  prob- 
able in  the  case  of  a  new  telephone  system  now  being 
established  in  Jackson.  Chicago  has  had  as  many  as 
nine  gas  companies  at  once,  with  three  sets  of  pipes  in 
one  street.  Consolidations  have  taken  place  there  re- 
peatedly.^ 

'The  West  Shore  Railroad,  completed  in  1883  between  New  York 
and  Buffalo,  which  was  called  into  existence  by  high  dividends  of  the  New 
York  Central,  was  a  noted  example  of  the  futility  of  trying  to  compete  with 
a  natural  monopoly.  Being  parallel  to  the  New  York  Central,  it  could  get 
no  business  that  the  latter  might  not  easily  have  handled  without  laying 
any  new  track  ;  and  having  to  take  second  choice  of  routes,  it  was  unable 
to  offer  service  fully  equal  to  th.it  of  the  Central,  which  was  also  much 
stronger  in  capital  and  equipment,  and  reduced  its  charges  to  meet  the  cut 
rates  of  its  new  competitor.  The  result  was  that  the  West  Shore  soon 
became  unable  to  continue  bearing  its  losses,  and  was  bought  by  the  Cen- 
tral at  a  low  price. 


40  TJic  Pi'ain  Facts  as  to  the  Tjnists. 

Monopoly  in  Mines  and  Forests. — Another  kind  of 
natural  monopoly  is  one  formed  by  agreement  or  pur- 
chase between  the  owners  of  the  best  mines  or  best  re- 

The  Nickel  Plate  road,  paralleling  the  Lake  Shore  from  Buffalo  to 
Chicago,  similarly  failed  about  the  same  time.  Building  these  two  parallel 
lines  was  a  part  of  the  extravagant  speculative  enterprise  of  18S0-83,  when 
the  new  mileage  laid  was  three  times  what  was  needed.  Some  new  roads 
were  built  to  force  old  roads  to  buy  them  ;  and  others,  with  all  the  money 
raised  on  bonds  (sometimes  sold  at  heavy  discount),  the  stock  representing 
only  water,  were  organized  by  men  who  paid  the  money  to  themselves  as 
contractors.  The  stoppage  of  this  excessive  building  of  railroads  caused 
the  depression  of  1884-85.      (Hadley,  Railroads,  53.) 

Waste  of  Capital. — Besides  the  loss  to  the  owners  of  the  millions  of 
capital  put  into  the  West  Shore  road  and  never  gotten  back,  the  public 
must  continue  to  lose  from  that  unfortunate  venture.  So  far  as  the  new 
line  absorbs  capital  in  tracks  and  buildings  above  what  would  have  been 
necessary  to  handle  all  the  business  on  the  old  line,  its  existence  adds  to 
the  rates  that  the  Central  must  charge  in  order  to  pay  a  reasonable  dividend 
on  its  total  investment.  The  land  occupied  is  kept  from  agriculture,  and 
there  is  waste  in  the  decay  of  unnecessary  buildings.  Because  there  are 
two  roads  the  mileage  is  doubled,  reducing  earnings  per  mile,  on  which 
the  legislature  may  fix  passenger  rates.  It  is  of  concern  to  the  public  that 
no  losses  be  incurred  by  anybody,  and  that  no  more  capital  be  invested 
in  any  enterprise  than  is  necessary  to  render  its  best  service.  There  are 
always  many  real  needs  that  capital  may  be  used  to  supply. 

Useless  Railroads  Not  Built  Now. — The  utter  failure  of  the  West 
Shore,  and  of  similar  roads,  by  reason  of  the  natural  monopoly  involved, 
will  hereafter  prevent  such  waste  of  capital,  investors  having  learned  to  in- 
vestigate better  the  prospect  of  earnings.  In  most  states,  under  a  general 
law,  a  company  can  build  a  railroad  anywhere,  whether  needed  or  not.  Up 
to  1884  the  feeling  was  that  the  more  railroads  the  better.  In  a  few  states, 
as  in  all  at  first,  a  special  charter  must  be  obtained  from  the  legislature, 
which,  like  a  city  council  with  a  franchise,  can  refuse  it  if  not  designed  for 
the  public  good,  though  often  a  corrupting  lobby  must  then  be  resisted. 
In  New  York  and  New  England  the  building  of  a  railroad  now  must  first 
be  approved  by  the  state  commissioners.  Over-building  in  the  West  was 
largely  due  to  the  people's  zeal  in  giving  bonuses  for  new  lines,  though 
they  were  often  influenced  by  paid  speakers,  and  by  railroad  promoters  or 
others  who  had  bought  vacant  land  through  which  the  road  was  to  pass. 
After  the  Nebraska  board  had  said  the  state  had  a  third  too  many  railroads, 
Lincoln  gave  {^50,000  toward  a  new  line  into  Omaha,  with  which  it  was 
already  connected  by  four  roads.      (A.  G.  Warner,  P.  S.  Quarterly,  189J. ) 


Kinds  of  Monopolies.  4 1 

serves  of  timber.  Such  sources  of  wealth  are  Hmited. 
A  monopoly  price  for  a  scarce  mineral,  though  the  mine 
operators  remain  competitors,  may  be  maintained  by  the 
railroads,  through  an  agreement  on  freight  charges, 
which  must  be  added  to  the  consumer's  price.  Such  has 
been  the  case  with  anthracite  coal,  found  only  in  north- 
eastern Pennsylvania.  The  Standard  Oil  Company's 
monopoly  is  now  chiefly  maintained  by  its  ownership  of 
a  great  system  of  pipe  lines  between  the  oil  fields  and  the 
seaboard,  and  of  many  well  located  refineries,  ware- 
houses, and  docks.  The  oil  business  might  not  be  suf- 
ficient to  yield  a  profit  on  another  similar  plant,  and  if  it 
were,  the  Standard  had  first  choice  of  locations,  placing 
it  at  the  head,  like  the  best  railroad.  Besides,  the  oil 
monopoly  is  strengthened  by  the  economies  of  its  large 
and  perfected  business.  So  far  as  based  upon  control  of 
natural  supply  of  crude  oil,  its  monopoly  has  been  weak- 
ened by  the  discovery  in  1900  of  many  wells  in  Texas 
and  California,  flowing  more  copiously  than  any  previ- 
ously known.  Probably  stronger  competition  in  refining 
will  now  spring  up.  New  corporations  to  compete  with 
the  Standard  have  been  chartered  in  Texas. 

Telegraph,  and  Telephone  Monopolies. — The  Western 
Union  Telegraph  Company  secured  a  monopoly  by  pur- 
chase of  other  systems,  though  the  Postal  Company  has 
competed  with  it  during  the  last  fifteen  years  over  some 
parts  of  the  country.  Similar  to  the  gas  business,  the 
telegraph  business  is  a  natural  monopoly  because  after 
one  system  of  lines  is  in  operation,  connecting  all  the 
important  cities,  another  company  can  not  compete 
in  supplying  equal  service  until  it  has  an  equal  system 
of  lines,  in  a  business  field  for  v/hich  the  first  system 
would  be  ample.     A  telephone  system  is  a  monopoly 


42  TJic  Plain  Facts  as  to  the  Trusts. 

for  the  same  reasons,  and  for  the  additional  reason 
that  with  one  system  a  person  can  talk  with  every 
telephone  subscriber  in  the  city,  or  long  distance  district, 
while  to  do  this  with  two  systems  he  must  be  a  sub- 
scriber to  both,  at  a  greater  total  cost  usually  than  with 
one.  Besides,  both  the  telegraph  and  telephone  monopo- 
lies, especially  the  latter  as  covering  the  country,  have 
rested  partly  on  purchase  of  patents,  as  does  the  trust 
or  capitalistic  monopoly  of  the  American  Steel  and  Wire 
Company,  owning  all  the  important  patents,  and  that  of 
the  General  Electric  Company,  The  steel  trust's  mon- 
opoly rests  on  its  ownership  of  mines,  ore  fleets,  rail- 
roads, and  patents.  The  express  business  is  a  monopoly 
because  the  railroad  is  a  monopoly  whose  lines  it  has 
the  exclusive  right  to  use. 

Other  Monopolies  of  Location. — A  manufacturer  using  all 
of  a  valuable  water  power,  not  equalled  elsewhere,  would 
have  a  natural  monopoly  of  that  advantage.  A  merchant 
in  the  best  stand  has  a  natural  monopoly  in  location  if  no 
other  equally  good  stand  can  be  established.  A  monopoly 
of  the  right  to  supply  meals  is  sold  to  the  concern  pur- 
chasing the  restaurant  concession  from  an  exposition. 
Such  is  a  natural  monopoly  of  place.  Landing  places  for 
vessels  have  long  been  valuable  monopolies,  and  bridges 
built  in  the  best  locations.  A  monopoly  of  the  right  to 
solicit  business  in  trains  and  stations  is  leased  by  a  news 
company, and  by  a  baggage  transfer  company.  The  lessees 
are  then  faiily  sure  of  a  paying  business,  and  the  railroad 
company  knows  the  service  will  be  attended  to  properly. 

Government  Monopolies. — The  postal  service  is  a 
government  monopoly  in  all  countries,  becau.se  it  is 
essential  to  civilization,  must  often  be  carried  on  at  a  loss 
where  population  is  sparse,  and  must  reach  every  part 


Kinds  of  Monopolies.  43 

of  the  country.  The  French  government  has  a  fiscal 
monopoly  of  the  tobacco  business,  for  the  sake  of  the 
large  revenue  it  yields.  For  the  same  purpose,  other 
European  governments  have  a  monopoly  of  the  sale  of 
salt,  and  India  of  the  trade  in  opium.  The  state  of  South 
Carolina  and  the  countries  of  Russia,  Switzerland,  Nor- 
way and  Sweden,  have  recently  made  the  liquor  business 
a  state  or  a  city  monopoly  for  the  sake  of  its  regulation. 
Similar  control  of  this  troublesome  business  has  been 
considered  by  the  municipality  of  Glasgow.  Russia's 
national  monopoly  of  liquor  exists  partly  for  the  sake  of 
revenue,  yielding  over  ^100,000,000  a  year.  Japan  has 
a  monopoly  of  the  trade  in  opium  in  her  Chinese  island 
of  Formosa,  to  lessen  its  use  there.* 

Patents  and  Copyrights  are  legal  monopolies.  Of  this 
kind  were  those  formerly  granted  by  the  king,  some- 
times for  a  payment  into  his  treasury,  and  sometimes 
as  a  gift  or  reward  to  a  favorite.  To  encourage  in- 
vention of  useful  things  needed  by  society,  the  govern- 
ment rewards  an  inventor  with  a  patent,  giving  him  for 
seventeen  years  the  exclusive  right  to  make  and  sell  his 
new  contrivance.  A  copyright  is  a  reward  of  the  same 
kind  to  an  author,  giving  him  for  twenty-eight  years  the 
exclusive  right  to  make  copies  of  and  sell  his  book.  The 
time  of  a  patent  is  limited,  because  the  invention  would  be 
of  little  use  to  the  inventor  if  society  did  not  do  its  part  by 
affording  a  market  for  it,  and  because  he  could  never  have 
invented  his  contrivance  if  his  idea  had  not  been  developed 
in  society's  needs  and  experiences.  Registering  a  trade 
mark  gives  the  exclusive  right  to  use  it  on  an  article  of 
merchandise,  and  enables  its  owner  to  reserve  for  himself 
the  benefit  of  the  reputation  he  has  built  up  for  his  goods. 

>  Ely,  47.     Public  Opinion,  1902,  p.  il. 


CHAPTER    IV. 


THE    RAILROAD    PROBLEM. 


Always  to  be  Monopolies. — The  kinds  of  business  that 
are  naturally  monopolistic  will  probably  remain  so  al- 
ways. Generally  it  is  useless  to  tiy  to  make  them  com- 
petitive. 

Government  Must  Control. — The  remedies  for  their 
evils  lie  with  the  government.  Its  right  of  control  over 
them  has  long  been  exercised.  A  body  of  law  sufficient 
for  their  regulation  seems  to  be  growing  up  as  the  need  for 
law  appears.  Abuses  showing  this  need  exist  for  some 
time  before  effective  measures  against  them  are  enacted. 
It  is  vain  to  turn  aside  from  law,  to  depend  wholly  on 
natural  safeguards.  Enlightened  self-interest,  no  less 
than  honesty,  would  lead  a  railroad  company  to  make 
moderate  charges,  and  to  benefit  its  patrons  in  every 
reasonable  way,  that  from  their  increasing  wealth  it 
might  obtain  more  and  more  business.  But  the  manage- 
ment of  a  railroad  may  sometimes  want  the  gain  quickly, 
to  prove  its  ability  and  make  a  showing  of  success, 
feeling  that  a  levy  on  the  people  by  means  of  charges 
slightly  excessive  will  not  unfavorably  affect  their  pros- 
perity and  demand  for  railroad  service.  In  many  cases 
previous  to  1887  managers  made  their  freight  levy  all 
their  patrons  could  bear,  and  in  many  other  cases  un- 
equal freight  charges  drove  patrons  out  of  business. 

Our  Living  Dependent  upon  Eailroads. — The  necessity 
for  closer  control   of  railroads  by  law  than  of  ordinary 

44 


Tlic  Railroad  Problem.  45 

occupations  arises  from  the  natural  monopoly  of  rail- 
roads. Under  the  modern  system  of  division  of  occu- 
pations, each  person  and  each  community  following  the 
one  or  the  few  lines  of  business  that  seem  to  yield  most 
wealth,  transportation  of  goods  is  not  less  essential  than 
exchange.  One  community's  few  kinds  of  products  ex- 
ceed many  fold  in  quantity  its  own  needs,  necessitating  a 
shipment  of  the  surplus  to  be  consumed  elsewhere ; 
while  a  large  variety  of  the  supplies  it  consumes  must  be 
shipped  in  from  other  places  of  production.  In  settling 
distant  lands  and  engaging  in  a  few  occupations,  with  no 
attempt  to  supply  all  needs  by  local  production  as  in  old 
times,  people  depend  largely  upon  railroads  for  their  liv- 
ing. This  is  why  it  has  been  said  of  railroads  that  their 
power  is  truly  sovereign,  their  charges  being  in  the  na- 
ture of  a  tax.  Monopoly  of  the  means  of  transportation 
is  complete  where  one  railroad  is  the  sole  outlet  and 
inlet.  Without  its  control  by  law  the  people  served 
would  be  at  its  mercy.  The  wagon  transportation  of 
eighty  years  ago  could  not  be  resorted  to,  because  prod- 
ucts thus  transported  to  market  would  have  cost  when 
sold  more  than  the  selling  price. 

Communities  on  Lakes  and  Rivers  are  kept  from  the 
power  of  railroad  monopoly  by  boat  transportation, 
which  is  often  an  efficient  regulator  of  railroad  rates. 
The  second-class  fare  by  rail  between  Quebec  and  Mon- 
treal, 170  miles,  is  only  $2  during  the  season  of  naviga- 
tion. When  the  river  is  frozen  the  fare  is  about  double 
that  sum.  The  lower  rate  is  fixed  by  boat  competi- 
tion— perhaps  too  low  to  be  profitable  to  the  railway. 
The  higher  rate  is  fixed  by  what  the  traffic  will  bear. 
To  make  it  still  higher,  if  allowed  by  law,  would  check 
travel  and  make  the  railroad  unpopular.     Considering 


46  TJic  Plain  Facts  as  to  the  Trusts. 

possible  growth  of  traffic,  charging  what  it  will  bear, 
with  best  results  to  the  company  in  the  long  run,  is 
usually  about  the  just  course  toward  the  public.  Here 
there  are  two  railroads,  but  their  mutual  interest  is  to 
agree,  and  to  act  as  one  concerning  charges.  Mutual 
interests  are  the  same  where  there  are  three  or  more 
roads.  It  pays  a  company  better  to  be  at  peace,  and  to 
allow  each  competitor  to  have  a  fair  share  of  the  traffic, 
than  to  get  more  traffic  for  itself  by  cuts  in  rates  that  are 
discovered.^ 

By  Nature,  Therefore,  Railroads  Must  be  Monopolies. 
Of  this  fact  no  complaint  can  be  made.  But  as  they 
are  subject  to  state  control,  it  may  well  be  asked.  Is 
their  service  as  good  and  as  cheap  as  it  ought  to  be  ?  If 
not,  in  what  respect  is  it  faulty  ? 

Our  American  Passeng-er  Service,  both  in  low  charges 
and  in  efficiency,  bears  comparison  well.  The  New  York 
Central's  first-class  rate  of  2  cents  a  mile  (no  other  class) 
is  the  same  as  the  English  third-class  rate  in  little  old 

'A  Differential  (reduction  from  highest  passenger  fare)  is  allowed  in 
some  cases  by  agreement  among  the  managers  to  be  charged  by  those  com- 
panies whose  routes  are  longest,  and  whose  service  is  inferior  in  quickness 
to  that  of  the  foremost  companies,  which,  to  keep  the  agreement,  must 
charge  the  higher  rate.  Between  Chicago  and  New  York  the  fast  lines 
charging  $2  extra,  ;^20  in  all,  are  the  Lake  Shore,  the  Michigan  Central, 
and  the  Pennsylvania.  With  any  one  of  these,  the  quickest  running  time 
is  24  hours.  The  others  are  the  Grand  Trunk,  the  Nickel  Plate,  the  Erie, 
the  Baltimore  and  Ohio,  and  the  Wabash.  When  one  of  the  latter  runs 
a  train  regularly  between  the  two  cities  in  less  than  28  hours,  it  must 
charge,  to  keep  the  agreement,  $l  extra  for  each  hour  less.  When  one 
company  breaks  the  agreement,  the  others  are  likely  to  break  it  too,  to 
meet  the  competition,  and  from  the  consequent  unsettling  of  rates  all  the 
roads  may  incur  loss.  The  Lake  Shore  and  New  York  Central  line,  a 
high  oflficial  said,  is  kept  from  making  the  trip  as  quickly  as  it  might,  by 
the  fact  that  other  lines  would  then  cut  rates  to  balance  its  advantage  of 
extra  speed.  ( Ely,  72. )  They  would  be  compelled  to  do  so  to  get  any 
considerable  share  of  the  through  business. 


The  Railroad  Problem.  47 

cars  with  no  hallway  lengthwise.  The  third-class  rate 
on  the  Continent  in  worse  cars,  a  rate  often  commended 
for  cheapness,  is  given  in  the  carefully  edited  Baedecker 
guide-books  as  averaging  about  1.9  cents  a  mile  in  Amer- 
ican money.  The  present  third-class  rate  of  ^3.35  be- 
tween Brussels  and  Paris,  about  200  miles,  with  an  ex- 
press train  speed  of  less  than  3  5  miles  an  hour,  does  not 
seem  specially  low  in  comparison  with  the  first-class  rate 
of  $8  over  the  440  miles  between  New  York  and  Buffalo 
at  45  miles  an  hour,  or  the  1^8.50  rate  in  the  world's 
finest  trains  at  50  miles  an  hour.^ 

'Passenger  Rates  in  Europe. — The  Inter  State  Commerce  Commis- 
sion collated  several  years  ago  the  following  list  of  rates  per  passenger 
per  mile : 


I  St 

2d 

3CI 

ISt 

2d 

3d 

Class. 

Class. 

Class. 

Class. 

Class. 

Class. 

Cents. 

Cents. 

Ce>!ts. 

Cents. 

Cents. 

Cents. 

Great  Britain, 

4.24 

i-n 

2.02 

Sweden, 

3-03 

2.22 

1. 61 

France, 

4.04 

303 

2.02 

Norway, 

1. 61 

1. 01 

•50 

Germany, 

303 

2.22 

1. 61 

Denmark, 

3-23 

2.22 

I  61 

Russia, 

3-63 

2.82 

1. 61 

Holland, 

3-23 

1.62 

1. 61 

Austria, 

3.83 

2.82 

1. 81 

Belgium, 

2.42 

1. 81 

1. 21 

Italy, 

3-63 

2.62 

i.Si 

Switzerland, 

Z-^i 

2.62 

2.02 

Spain, 

4.24 

323 

2.02 

Turkey, 

5-85 

525 

2.82 

The  following  figures  were  submitted  to  the  Industrial  Commission  (Vol. 
IV.  758)  by  Waiter  E.  Weyl,  as  having  been  carefully  compiled  for  1897  : 


Passengers  per 

ATerage 

Fare  per 

Millions 

Head  of 

Trip  in 

Wile  in 

of 

Population. 

Wiles. 

Cents. 

Passengers. 

Germany, 

13.2 

14-5 

1.08 

692.5 

Great  Britain, 

27.0rt 

1030.4  a 

France, 

10.3 

18.3 

1. 17 

396.7 

India, 

0-5 

39-2 

.z"]  b 

151. 2 

United  States, 

1898,     6.6 

26.7 

1.97 

501.2 

a.  Not  including  season  ticket  travel. 

b.  This  rate  of  but  little  over  a  quarter  of  a  cent  per  mile  is  based  on 
the  gold  value  of  the  silver  rupee,  but  as  it  passes  for  more,  being  under 
limited  coinage,  it  would  be  more  nearly  correct  to  put  the  rate  at  about  a 
half  cent  per  mile.     See  also  the  table  in  a  note  a  few  pages  further  on. 

The  Very  Low  Rates  of  Austria,  less  than  l  cent  a  mile  in  some  cases, 
may  be  brought  down  by  the  kind  of  traveling  a  young  Hollander  told  of. 


48  TJie  Plain  Facts  as  to  the  Trusts. 

Our  Freight  Service  bears  comparison  as  well  or  better. 
In  efficiency  of  service,  both  passenger  and  freight,  the 
United  States  comes  first  and  England  second — both 
countries  entirely  under  private  ownership  and  operation. 
With  them  trains  are  run  fastest  and  most  frequently. 

He  said  :  "  In  Germany  they  have  fourth-class  cars.  In  them  sometimes 
you  sit  down,  but  mostly  you  stand."  They  are  largely  used  for  soldiers. 
Fourth-class  travel,  according  to  Mr.  Weyl,  is  28  per  cent  of  the  total  in 
Germany,  and  over  90  per  cent  in  India.  This  accounts  in  part  for  the  low 
average  rate  of  these  two  countries.  In  Europe  generally,  third-class  travel 
ranges  from  80  to  90  per  cent  of  the  total.  With  the  Russian  Government's 
Siberian  railroad,  the  object  now  is  not  profit  in  fares,  but  settlement  of  the 
country.  For  the  trip  of  3,404  miles  from  Moscow  to  Irkutsk  the  first- 
class  fare  is  only  ;?38.25,  including  sleeper  and  stop-overs.  The  second- 
class  fare  is  ^23.02.  The  third-class  fare  is  much  less,  being  designed  for 
poor  immigrants.  These  figures  were  lately  published  in  newspapers,  from 
information  furnished  by  travelers. 

The  Usual  American  First-Class  Rates  are  3  cents  a  mile  for  short 
rides  and  about  2  cents  for  long  rides.  The  common  excursion  rate  of 
one  fare  for  the  round  trip  is  never  higher  than  i}i,  cents,  except  in  a  few 
sparsely  settled  regions,  where  the  regular  rate  is  4  cents.  Excursion 
rates  are  often  as  low  as  I  cent,  sometimes  lower.  Summer  and  holiday 
rates,  and  cheap  excursions  to  fairs  and  conventions,  come  so  frequently 
that  a  person  seldom  has  occasion  to  travel  for  pleasure  at  full  fare.  Ten 
or  more  persons,  going  and  returning  together  within  three  days,  are  given 
by  the  Michigan  Central  a  local  party  rate  of  2  cents  a  mile.  Much  of  the 
long  distance  travel  is  on  second-class  tickets  at  less  than  2  cents  a  mile. 
Commercial  travelers  use  first-class  1,000-mile  tickets  at  2  cents,  good  for 
one  person  for  one  year,  over  all  the  roads  of  a  large  section.  Many  com- 
panies sell  500-mile  tickets  for  i!io. 

Electric  Railways. — The  3-cent  local  rate  will  affect  few  passengers 
in  the  densely  populated  states,  after  the  growing  network  of  electric 
lines  has  been  further  developed.  Electric  fares  seldom  go  above  2  cents 
a  mile,  ranging  about  a  half-cent  lower  for  rides  of  some  distance — some- 
times down  to  I  cent.  The  steam  railway  meets  the  25 -cent  rate  between 
Detroit  and  Pontiac,  about  i  cent  per  mile.  To  some  extent  this  has  long 
been  done,  in  competition  with  street  cars,  by  ste.im  railroads  running  sub- 
urban trains  into  Inrge  cities. 

Low  Average  of  Rates. — Reduced  by  these  various  kinds  of  low  rate 
tickets,  avcrnge  income  per  passenger  per  mile,  in  all  the  steam  railroad 
traffic  of  the  United  States,  was  1.925  cents  in  1899,  2.42  in  18S3,  and  1.85 
in  1882. 


The  Railroad  Problem.  49 

Government  Railroads. — On  the  Continent  many  rail- 
roads are  owned  and  operated  by  the  government,  espe- 
cially in  Germany,  Russia,  Austria,  and  Belgium.  In 
the  latter  country  the  government  owns  and  operates  all 
the  railroads.  Italy  owns  its  main  lines,  but  leases  them 
to  operating  companies.  The  French  railroads  will  fall 
to  the  government  in  about  fifty  years.  It  has  given 
them  large  subsidies  in  money,  and  now  owns  and  oper- 
ates one  system — the  least  important  of  the  country's 
lines.  Continental  rates  for  passengers  are  usually  low  ; 
but  in  the  best  state  railroad  system,  that  of  Germany,  the 
amount  and  speed  of  train  service,  "  whether  for  passen- 
gers or  freight,  are,  according  to  English  and  American 
standards,  miserably  inadequate."  ^ 

Privately  Owned  Railroads,  though  less  than  two-thirds 
the  world's  mileage,  have  furnished  practically  all  the 
improvements.  The  French  railroads  have  always  been 
privately  owned,  but  as  each  has  a  monopoly  of  its  terri- 
tory guaranteed  by  the  government,  the  benefits  of  pri- 
vate ownership  do  not  appear,  and  the  service  is  on  a 
level  with  the  German.^ 

The  State  or  the  Individual  ? — Yet  it  is  not  to  be  sup- 
posed that  if  America  and  England  had  state  ownership, 
and  the  Continent  had  private  ownership,  the  superiority 
of  service  would  be  reversed.  No  doubt  the  Americans 
and  the  English  have  private  ownership  because  of  their 
individualistic  experience,  and  because  for  them  it  secures 
greatest  progress,  which  they  pursue  to  the  utmost, 
adopting  the  system  that  best  promotes  it ;  while  the 
Continental  peoples  follow  their  habit  of  depending  on  the 
government  to  do  things  for  them.     Their  idea  is  that 

'  Hadley,  399. 
*Hadley,  399. 

4 


50  TJic  Plain  Facts  as  to  the  Trusts. 

government  should  do  all  it  can  ;  the  English  and  Ameri- 
can idea  is  that  government  should  do  only  what  private 
enterprise  cannot.^  On  the  Continent,  it  is  clearly  notice- 
able, they  have  efificient  government  but  timid  people.  In 
America  we  have  people  of  unequalled  enterprise,  but 
government  that  needs  improvement  in  some  particulars. 
We  like  our  way  best,  feeling  that  the  government  exists 
for  the  people,  not  the  people  for  the  government.  The 
encouragement  of  large  product,  high  wages,  and  means 
of  advancement,  has  made  American  labor  the  most  effi- 
cient in  the  world  ;  but  it  would  probably  deteriorate  in 
time  if  looking  to  the  government  became  a  habit  here. 
Americans  Pay  Well  for  a  Good  Service. — For  passen- 
ger service,  as  for  other  things,  Americans  prefer  to  pay 
well  in  order  to  get  the  best.  Continental  railroad  ser- 
vice, though  cheap,  would  not  be  tolerated  in  America, 
any  more  than  Continental  living  in  general.  We  have 
larger  incomes,  and  can  enjoy  better  things.  But  con- 
sidering the  difference  in  quality,  our  passenger  service 
seems  at  least  as  cheap  as  theirs.  English  passenger 
rates  are  high  considering  amount  of  traffic  (1,142,- 
000,000  passengers  in  1900,  against  our  577,000,000). 
But  they  are  not  high  considering  the  short  local  trips 
of  England,  and  the  long  trips  of  America.  British  roads, 
being  owned  by  stockholders  at  home,  and  being  in  favor 
with  the  government,  are  allowed  by  law  to  charge  a 
fairly  high  rate,  2  cents  for  third-class  ;  while  our  roads, 
owned  usually  by  residents  of  other  states,  are  closely 
watched,  with  a  tendency  toward  lowering  their  rates  by 
law.^ 

'  Iladley,  Railroads,  187. 

*  In  Railroad  Speed  France  now  comes  first  with  a  few  exceptional 
trains.     England  led  until  late  years,     For  several  weeks  in  1888,  until 


The  Railroad  Problem.  5 1 

It  is  in  Low  Freight  Charges  that  America  Leads 
Farthest.     And  aside  from  the  comparison  our  freight 

stopped  by  unprofitable  expense  and  wear,  the  East  Coast  and  the  West 
Coast  lines  ran  each  a  train  about  400  miles,  from  London  to  Scotland,  at 
a  fraction  over  50  miles  an  hour.  The  New  York  Central  and  Lake  Shore 
Exposition  Flyer,  for  four  months  in  1893,  ran  between  New  York  and 
Chicago,  952  miles,  in  20  hours — 47.6  miles  an  hour.  This  speed  for  the 
distance  is  still  unequalled  with  a  regular  train. 

The  World's  Fastest  Trains. — The  Paris  and  Calais  Express,  in 
December,  1900,  began  a  new  schedule,  running  the  184  miles  in  184^^ 
minutes,  a  trifle  under  60  miles  an  hour.  Deducting  one  stop  of  2.}^ 
minutes,  the  rate  is  60.66  miles.  The  South  Express,  four  times  a  week 
from  Paris  to  Bayonne,  486.25  miles,  ran  for  a  year  or  more  at  an  average 
of  54.13  miles  per  hour,  deducting  no  time  for  stops.  In  1901,  after  an 
accident,  the  speed  was  reduced  to  about  50  miles  per  hour.  During  the 
last  ten  years  the  New  York  Central's  Empire  State  Express  has  been  run- 
ning from  New  York  to  Buffalo,  438.96  miles,  in  8^  hours,  from  8:30  to 
4:45,  an  average  of  53.2  miles  an  hour.  These  are  the  fastest  regular 
runs  over  long  distances.  The  fastest  train  of  this  class  in  England  is  now 
that  of  the  Great  Northern  road  between  London  and  Edinburgh,  which 
covers  the  393.50  miles  in  73^  hours — 50.77  miles  an  hour.  The  fastest 
regular  train,  previous  to  the  starting  of  the  service  by  the  Empire  State 
Express,  was  on  the  Prussian  state  railway  between  Berlin  and  Hamburg. 
For  a  short  run  the  fastest  train  has  lately  been  that  of  the  Reading  rail- 
road, which  covers  the  55.36  miles  between  Atlantic  City  and  Philadelphia 
in  50  minutes — 66.34  miles  per  hour.  The  longest  regular  run  without 
stop  is  that  of  the  Great  Western  from  London  to  Exeter,  I94  miles.  The 
Northwestern  of  England  comes  first  in  the  world  in  high  average  speed 
of  its  six  fastest  trains — 46^  miles  per  hour. 

Highest  Speed  for  Single  Runs. — In  1848,  on  Great  Western  of 
England,  53  miles,  68  miles  per  hour.  In  1895,  on  Lake  Shore,  Chicago 
to  Buffalo,  510  miles,  63.61  miles  per  hour;  same  train  to  New  York, 
952  miles,  54.20  miles  per  hour.  In  1895,  on  Northwestern,  London  to 
Aberdeen,  540  miles,  63.28  miles  per  hour.  In  1897,  on  the  Burlington, 
Chicago  to  Denver,  1,025  miles,  58.74  miles  per  hour.  In  1 876,  special 
train  from  New  York  to  San  Francisco,  3,311  miles,  39.53  miles  per  hour. 
In  1893,  Empire  State  Express  ran  I  mile  at  the  rate  112.50  miles  per 
hour.  In  1899,  a  Burlington  train  ran  2  miles  at  the  rate  of  130  miles 
per  hour.  In  1901,  on  the  Plant  System  in  Florida,  a  train  ran  5  miles  at 
the  rate  of  120  miles  per  hour.  In  all  these  cases,  in  computing  speed,  no 
time  is  deducted  for  stops.  Most  of  this  information  is  taken  from  the 
World  Almanac  for  1 902,  and  all  of  it  may  be  accepted  as  reliable. 


52  Tlie  Plain  Facts  as  to  the  Trusts. 

rates  generally  seem  low  enough.  The  all-rail  rate  on 
grain  from  Chicago  to  New  York,  980  miles,  was  re- 
duced in  May,  1901,  from  lyyic  to  15c.  per  100  pounds 
(13  yic  when  shipped  for  export).  A  rate  as  low  as  loc. 
was  then  reported,  given  by  roads  that  had  unused  cars. 
By  the  usual  differential,  the  rate  to  Philadelphia  and 
Baltimore  is  a  cent  and  a  half  lower  than  to  New  York. 
A  rate  of  6c.  from  St.  Paul  to  Chicago,  400  miles,  then 

But  in  Freight  Traffic  the  United  States  is  in  a  class  by  itself,  carry- 
ing in  1900,  1,101,000,000  tons.  The  English  freight  cars,  which  they 
properly  call  wagons,  carry  each  from  5  to  10  tons  only,  against  the  30, 
40,  and  even  50  tons  of  the  newer  American  cars.  Checking  of  baggage, 
sleeping  cars,  and  a  hallway  lengthwise  through  passenger  coaches  (for 
toilet  privileges)  were  recently  introduced  on  a  few  trains  in  European 
countries,  involving  in  many  cases  high  extra  charges.  Against  the 
American  baggage  allowance  of  150  pounds,  theirs  varies  from  25  to  loo 
pounds.  Until  lately  their  railway  systems  were  operated  with  little  regard 
for  any  but  local  traffic.  Their  small  and  frail  coaches,  entered  from  each 
side  between  every  two  seats,  are  still  called  carriages  in  England,  after 
which  they  were  patterned  as  well  as  named.  In  general,  American  rail- 
way superiority  is  in  size  of  cars  and  engines,  passenger  accommodations, 
and  through  traffic  arrangements.  Superintendent  Watson,  of  the  North- 
eastern of  England,  said  in  September,  1 901,  after  riding  on  the  Penn- 
sylvania Limited:  "  We  have  nothing  to  compare  with  that."  British 
railways  carried  in  1900,  425,000,000  tons  of  freight. 

Cost  of  Roads  and  Mileage.— English  roads  were  built  more  costly, 
usually  with  double  track  from  the  first,  stone  stations  and  bridges,  and  no 
grade  crossings.  Their  cost  on  the  average,  in  total  stock  and  bonds  in 
1885,  was  $204,500  per  mile,  against  about  $115,000  for  Continental  roads, 
and  $61,885  (in  ^Qoo)  for  American,  ours  being  brought  low  in  part  by 
cheapness  of  land,  but  raised  in  many  cases  by  stock  watering.  (Hadley, 
Railroads,  154.)  Holland,  Denmark,  Bulgaria,  Norway  and  Sweden,  the 
only  European  countries  whose  railroad  capital  per  mile  is  lower  than  ours, 
have  a  service  greatly  inferior.  In  1900  the  United  States  had  189,295 
miles  of  line,  Europe  172,621,  Asia  35,938,  Africa  12,501,  the  world 
479,900.  {World  Almanac,  1902,  copying  from  Archiv  fur  Encnlahn- 
wesen.)  Now  (Jnnuary,  1902)  our  total  mileage  is  slightly  below  200,- 
000.  Our  total  railroad  capital  is  now  nearly  twelve  billions  of  dollars; 
annual  gross  earnings  a  billion  and  n  half;  net  earnings  more  than  a  half 
billion  ;  and  number  of  employees  fully  a  million. 


Tlie  Railroad  Problem.  5  3 

made  the  all -rail  freight  on  grain  from  St.  Paul  to  New 
York  21C.,  against  I9>^c.  by  rail  and  lake.  These  are 
among  the  lowest  of  all  rates,  being  made  under  compe- 
tition among  many  carriers,  and  for  a  large  traffic.  The 
2^-cent  reduction  from  Chicago  was  restored  in  Octo- 
ber, 

On  Wheat  per  Bushel  from  Chicago  to  New  York  (the 
above  figures  are  for  100  pounds),  the  average  all-rail 
rate  for  the  year  was  33)^c.  in  1870,  20c,  in  1880,  H^c. 
in  1890,  and  loc,  in  1900(9.08  for  export).  By  lake 
and  rail  the  rates  for  these  years  were  22c.,  15  ^c,  8  J^c, 
and  5c.  By  lake  and  Erie  Canal  they  were  lyy^c, 
I2^c.,  sH^->  ^"^  4/^c,  From  New  York  to  Liverpool 
the  rates  for  these  years  were  ii^c,  12c.,  5c.,  and  7c, 

For  All  Freight  the  Average  Rate  received  by  rail- 
roads in  the  United  States  per  ton  per  mile,  in  cents  and 
fractions  of  cents,  was  1.99c.  in  1870,  1,17c,  in  1880, 
1.03c.  in  1887,  .93c.  in  1890,  .80c,  in  1897,  and  ,73c,  in 
1899.  The  lowest  rate  here  was  when  freight  business 
was  largest.  Times  then  being  good,  a  rate  consider- 
ably higher  might  not  have  checked  traffic  in  many  lines. 
The  average  for  all  freight  is  brought  down  by  the  low 
rates  necessarily  given  on  heavy  products,  such  as  coal, 
ore,  and  logs,  to  make  their  transportation  profitable  to 
shippers. 

Local  Freights. — Yet  some  local  freights  on  small 
shipments  seem  not  less  reasonable.  The  rate  on  goods 
in  boxes  (first  class)  from  Chicago  to  Jackson,  210  miles, 
is  33c,  per  100  pounds;  from  Detroit,  ^6  miles,  25c,; 
newspaper  in  bundles  from  Chicago  (third  class)  22c, 
Large  shippers  get  a  rate  much  lower  by  the  carload, 
which  is  the  minimum  quantity  with  the  grain  rates  given 
above.     The  rate  on  first-class  freight  from  Staunton, 


54  The  Plain  Facts  as  to  the  Trusts. 

Va.,  to  Jackson,  Mich.,  a  zigzag  and  little  traveled  jour- 
ney of  700  miles,  is  only  60c.  for  small  shipments. 
Doubtless  the  rates  are  higher  where  railroad  competi- 
tion is  lacking,  but  that  is  the  case  with  few  places  of 
consequence.^ 

^How  Much  Lower  Freight  Rates  Than  in  Europe? — "Railway 
freight  rates  in  the  United  States  are  less  than  half  those  of  other  principal 
countries.  Our  railways  carry  our  chief  products  l,ooo  miles  to  our  sea- 
board for  less  than  the  railroads  of  other  countries  charge  for  carrying  these 
products  200  miles  inland  from  the  seacoast  after  they  have  crossed  the 
ocean."  (F.  B.  Thurber,  N.  A.  Revieiv,  May,  1901.)  In  this  quotation 
the  second  sentence  lessens  the  force  of  the  first.  There  may  be  cases  in 
which  the  local  freight  on  goods  shipped  from  New  York  200  miles  inland 
would  be  more  than  the  through  freight  on  the  same  goods  to  New  York 
from  Chicago.  Undoubtedly  European  roads  give  low  rates  when  neces- 
sary for  carrying  on  a  large  business,  as  on  Russian  oil  from  the  Caspian 
Sea,  and  on  logs  from  the  interior  of  Norway.  Our  freight  rates  are  the 
lowest  in  the  world  because  quantities  are  largest  and  distances  longest. 
English  rates  are  highest  because  distances  are  short,  and  also  because  the 
railways,  like  our  express  companies,  collect  and  deliver  the  higher-valued 
freight,  and  ship  very  promptly.  They  keep  no  record  of  their  rate  per  ton 
per  mile.  An  English  authority,  E.  Phillips,  writing  of  freight  rates  in 
steel  making,  says  the  American  are  about  one-sixth  of  the  British.  {^En- 
gineering  Magazine,  May,  1 90 1.) 

Professor  Frank  Parsons  submitted  the  following  table  to  the  Industrial 
Commission  in  1901.  (Vol.  IX. )  Compare  with  the  two  tables  previously 
given. 


Rate  Per  Ton 

Average  Haul 

Passenger 

Average 

Per  Mile 

Per  Ton, 

Rate 

Passenger 

in  Cents. 

in  Miles. 

in  Cents. 

Trip. 

United  States, 

•75 

130 

2 

26 

Germany, 

1.40 

60 

I.I 

20 

Austria-Hungary, 

1.40 

57 

I 

23 

Belgium, 

1.30 

40 

.88 

12 

Switzerland, 

2.80 

35 

»S5 

12 

France, 

1.48 

88 

1. 21 

20 

Great  Britain, 

2.10 

— 

2 

10 

The  above  figures  are  probably  the  latest  to  be  found,  and  when  com- 
pared with  the  other  tables  given,  and  with  prevailing  opinion,  they  seem 
to  be  reliable.  The  French  rate  per  ton  per  mile  averaged  1. 63  cents  in 
1881,  and  the  Belgium  1. 3  cents.  The  Belgian  passenger  rate  also  was 
then  lowest  of  all  except  that  of  India.     (Hadley,  Railroads,  201,  215.) 


TJie  Railroad  Problem.  5  5 

Summing  Up  therefore,  no  complaint  from  comparison, 
considering  the  prevaiHng  conditions,  can  be  made  against 
either  the  efficiency  or  the  cheapness  of  American  rail- 
road service.  In  freight  carrying  it  is  not  approached  in 
either  respect  by  the  service  of  any  European  country. 
In  carrying  passengers  it  may  be  equalled  by  the  English 
service  in  speed  and  number  of  trains,  but  not  in  accom- 
modations, nor  in  low  cost  for  long  rides.  The  Conti- 
nental roads  have  lower  fares,  but  for  accommodations 
not  suitable  here,  A  German  imperial  commission,  sent 
to  investigate  railroad  methods,  reported  last  year  that 
American  roads  furnish  the  best  service  in  the  world,  at 
the  lowest  rates,  and  pay  much  higher  wages  to  em- 
ployees than  are  paid  in  any  other  country.^ 

Our  Inter-State  Commerce  Commission  published  in  its  report  for  1894 
the  following  table  of  average  rates  per  ton  per  mile,  in  cents  of  American 
money : 


Great  Britain, 

2.8 

Italy, 

2.5 

Belgium, 

1.6 

France, 

2.2 

Sweden, 

3-2 

Switzerland, 

3.26 

Germany, 

1.64 

Norway, 

2.4 

Canada, 

1.02 

Russia, 

2.4 

Denmark, 

288 

Austria, 

2-3 

Holland, 

1.56 

^  The  German  Report  on  American  Railroads. — This  sentence  in  the 
text  was  made  up  from  an  American  newspaper  paragraph.  In  a  private 
letter  to  the  author,  in  March,  1902,  from  Mr.  Frank  H.  Mason,  United 
States  Consul  General  at  Berlin,  he  gave  a  synopsis  of  the  verbal  state- 
ments made  by  Baron  von  Thielen  in  reply  to  his  inquiries  for  the  sub- 
stance of  the  German  commissioners'  report.  That  synopsis  was  as 
follows : 

"It  states  that  the  American  railway  system  is  a  marvelous  creation, 
admirably  adapted  to  the  conditions  existing  in  the  United  States,  but  for 
many  reasons  not  adaptable  in  many  particulars  to  the  conditions  which 
exist  in  Germany.  Here,  as  you  are  aware,  the  Prussian  government  owns 
practically  all  the  railways  in  the  state.  They  are  operated  as  a  branch  of 
the  government  machinery.  The  element  of  competition  between  parallel 
lines  is  entirely  eliminated.  Rates  for  freight  are  high,  and  those  for  first 
and  second-class  passengers  likewise,  as  compared  with  the  rates  which 
prevail  in  the  United  States.  The  railways  are  prosperous  in  that  they 
earn  a  surplus,  and  not  only  pay  the  entire  interest  on  the  Prussian  debt, 
but  turn  millions  of  marks  each  year  into  the  Prussian  public  treasury.     It 


56  Tlie  Plain  Facts  as  to  the  Trusts. 

Government  Ownership  for  American  Railroads. — As  to 

efficiency,  having  already  the  best  railroad  service,  could 
we  make  it  still  better  under  government  ownership  ? 
A  negative  answer  must  be  given.  By  no  possible  change 
of  ownership  or  management,  it  seems,  could  our  most 
successful  railroad  systems  be  made  to  render  better  ser- 
vice to  the  public.  They  are  now  in  the  hands  of  trained 
experts,  brought  up  from  generations  of  experience,  who 
have  made  American  railroad  operation  a  model  for  the 
world. 

Managers  Work  Best  for  Themselves. — It  is  unlikely 
that  under  government  ownership  and  operation  these 
would  strive  so  intensely  to  reach  the  limit  of  possibility 
in  improvement.  Those  men  have  not  yet  lived  in 
America  who  as  government  officials,  however  liberal 
their  salaries,  could  force  themselves  to  care  for  a  public 
railroad  with  the  lifelong  devotion  of  the  managing  own- 
ers of  the  best  lines. 

And  Secure  Best  Service  from  Employees. — Nor  could 
they  as  government  officials,  with  hungry  place-hunters 
on  every  side,  quickly  advance  men  of  talent  to  the  posi- 
tions in  which  they  could  be  most  valuable.  There 
would  doubtless  be  faithfulness,  from  the  highest  officer 
to  the  lowest  employee,  but  not  that  live,  prompt,  for- 
ward-reaching interest  and  efficiency  that  are  continually 
taking  the  initiative  with  such  splendid  progress  in  per- 
is impossible  for  any  one  outside  of  the  Prussian  Ministry  of  Railways  to 
quote  any  part  of  the  language  of  the  commissioners'  report.  It  is  a  con- 
fidential document,  and  will  be  kept  so." 

Europeans  Studying  Our  Railroads.— A  number  of  English  rail- 
road officials  have  been  in  America  in  recent  months  studying  our  methods, 
especially  in  handling  freight.  A  falling  off  in  dividends  has  aroused 
British  stockholders  to  the  necessity  of  raising  their  rolling  stock  to  higher 
efficiency.  During  the  last  few  years  many  Europeans  have  come  to  study 
various  American  industries. 


The  Railroad  Problem.  57 

sonal  enterprise,  and  in  corporation  service  where  high 
merit  is  promptly  recognized  and  rewarded. 

Nor  Could  Average  Charges  be  Lowered  by  a  change  to 
government  ownership.  Economy  is  doubtless  carried 
as  far  now  as  efficiency  and  safety  will  permit.  The 
tendency  is  toward  the  most  effectual  of  all  economy — 
use  of  best  equipment,  operated  by  picked  men  at  high- 
est wages.  Costs  could  not  fail  to  be  higher  under  oper- 
ation by  the  government.  It  must  pay  highest  wages, 
but  without  freedom  to  pick  and  change  men,  and  in 
buying  supplies  it  is  too  often  influenced  by  the  seller. 
Equal  efficiency  in  railroad  service  could  hardly  be 
reached  without  considerable  addition  to  cost.  Civil 
service  reform,  carried  to  the  European  standard,  as  far 
off  as  this  seems,  might  not  secure  a  degree  of  faithful- 
ness equalling  that  in  the  best  corporate  service.  And 
as  indicated  above,  faithfulness  in  work  is  not  the  same 
as  efficiency,  by  a  great  deal.  The  one  may  be  dull  and 
mechanical ;  the  other  is  marked  by  active  individuality. 

We  Could  Not  Tax  One  Citizen  to  Give  to  Another. — Pri- 
vate owners  are  satisfied  with  low  and  falling  interest  or 
dividends  as  their  share  of  railroad  receipts.  Unless  the 
government  collected  in  railroad  charges  as  much  inter- 
est on  its  capital,  it  would  be  taking  one  man's  capital  in 
taxes  to  serve  another  man  whose  payment  for  railroad 
service  did  not  include  full  interest  on  the  capital  used. 
The  one  would  be  deprived  of  receiving  interest,  in  order 
that  the  other  might  be  relieved  from  paying  interest. 
The  slightly  lower  rate  at  which  the  government  can 
borrow  on  bonds  would  be  overbalanced  by  the  expen- 
siveness  of  public  business  ;  and  its  risk  in  earning  profits 
would  probably  be  greater,  requiring  dividends  at  least 
as  high.      Holding  government  capital  to  be  worthy  of 


58  The  Plain  Facts  as  to  the  Trusts. 

its  hire,  in  profits,  would  be  necessary  to  secure  justice 
between  taxpayer  and  freight-payer,  and  to  prevent 
wasteful  transportation. 

Light  Business  Must  Make  Poor  Service. — Likewise, 
the  unsuccessful  roads  the  government  could  not  oper- 
ate better  than  income  warranted,  unless  it  gave  to  their 
patrons,  without  return  in  charges,  the  benefit  of  taxes 
taken  from  others.  These  poor  lines  have  mostly  fallen 
into  possession  of  the  great  systems,  which  will  do  all  to 
improve  them  that  they  will  afford  traffic  to  pay  for. 
When  they  are  so  operated  as  to  deserve  and  get  all  the 
traffic  in  reach,  it  is  a  childish  fret  to  complain  that  the 
service  is  not  better.  On  some  little  branches  in  Quebec 
the  company  is  to  be  commended  for  running  trains  three 
times  a  week  instead  of  daily.  It  thus  avoids  giving  for 
nothing,  that  elsewhere  it  may  render  good  value  for  pay 
it  receives. 

The  Large  Profits  of  the  Best  Roads  could  not  be  dis- 
tributed to  the  public,  under  government  ownership,  by 
reducing  rates.  When  a  railroad  pays  dividends  on  a 
capital  of  market  value  much  larger  than  the  sum  it 
would  now  cost  to  build  its  lines  and  equipment,  the 
excess  of  dividends,  over  dividends  at  the  same  rate  on 
present  cost,  consists  of  rent  for  favorable  location,  and 
of  surplus  profit  on  a  risk  that  turned  out  well.  Pay- 
ment of  extra  gain  here  cannot  be  avoided.  Buyers  of 
the  company's  stock  in  the  recent  past  have  paid  in  its 
high  prices  for  their  share  of  the  property's  added  value. 
Owners  of  stock  from  the  beginning  have  waited  for  their 
share,  and  have  paid  for  it  too,  to  the  extent  that  in  any 
year  they  obtained  a  return  on  their  capital  less  than  they 
might  have  gotten  if  it  had  not  been  in  the  road.  In 
another  way  they  have  paid  toward  the  extra  value  by 


The  Railroad  Problem.  59 

bearing,  while  it  accrued,  a  risk  of  loss.  By  the  likeli- 
hood of  gain,  such  risks  are  balanced,  and  by  it  people 
are  induced  to  take  them.  Others  would  now  pay  high 
prices  for  the  stock.  The  government  would  have  to 
pay  the  same  prices  or  rob  the  owners,  and  on  capital 
thus  paid  would  have  to  collect  interest  in  charges  for 
service,  or  give  the  service  partly  free. 

The  Fact  that  There  Was  Little  Risk — that  the  best 
located  roads  were  practically  sure  to  become  immensely 
profitable,  does  not  lessen  the  right  of  the  original 
owners  to  added  value.  Others  might  have  gotten  it  by 
buying  stock  before  the  value  accrued.  Their  not  buy- 
ing shows  they  were  unwilling  to  take  the  risk.  Such 
gains  will  occur  in  forecasting  the  future,  balanced  by 
equal  losses  in  other  cases.  Legislators,  less  far-sighted 
perhaps  than  railroad  builders,  misunderstood  the  situa- 
tion where  they  failed  to  reserve  for  the  public  a  larger 
share  of  the  monopoly  value  arising  from  growth  of  the 
country.  Hereafter,  in  the  entire  business  field,  chances 
to  realize  monopoly  value  and  earnings  may  be  few. 
Change  and  improvement  may  be  less  rapid  and  gen- 
eral ;  and  besides,  knowledge  of  monopoly,  gained  from 
experience,  will  raise  at  first  the  price  of  opportunities 
(franchises)  to  reap  from  it,  and  will  cause  legislatures  to 
withhold  in  various  ways  its  advantages  for  the  public* 

'How  Much  Profit  Should  Railroad  Owners  be  Allowed?— The 
valuation  on  which  a  railroad  company  is  permitted  by  the  state  to  earn  a 
fair  rate  of  profit,  cannot  be  based  on  earning  capacity  when  the  road  is 
operated  at  a  loss,  nor  when  it  is  operated  with  a  great  net  income  above 
expenses.  To  let  the  company  have,  in  rise  of  its  dividends  and  stock 
value,  all  the  so-called  unearned  increment  of  value  that  comes  from 
growth  of  the  country,  would  be  to  overlook  that  railroads  are  public  high- 
ways. Charles  Francis  Adams  said  in  the  Massachusetts  report  of  1875 
that  excess  of  net  earnings  above  dividends  should  not  go  into  improve- 
ments, but  should  bo  taken  by  the  state  through  lower  charges,  leaving 


6o  The  Plain  Facts  as  to  the  Tnists. 

Earlier  Losses  in  Railroads. — The  hundreds  of  millions 
of  dollars  lost  in  railroads  by  earlier  stockholders  are 
now  gone  forever,  so  far  as  they  and  their  times  are  con- 
cerned. Their  experience  is  still  valuable,  whether  the 
cause  of  loss  was  lack  of  need  for  the  road,  or  waste  in 
building  it,  or  operation  too  inefficient  to  develop  the 
business  there  was,  or  swindling  by  controlling  owners 
in  excessive  salaries  to  themselves,  and  in  stock-watering 
schemes  for  getting  the  money  of  innocent  investors. 
Excessive  cost  of  these  roads  does  not  affect  their  sell- 
ing value  now.  The  able  railroad  men  who  buy  them 
get  them  at  prices  fixed  by  their  earning  power.  If  for 
any  reason  one  of  these  old  roads  fails  long  to  serve  its 
territory  reasonably  well,  and  there  is  traffic  not  cared 
for,  a  new  line  over  a  different  route  is  built,  unhampered 

improvements  to  be  made  with  outside  additions  to  capital.  (Dabney,  92. ) 
This  principle  is  followed  by  Michigan  in  passenger  fares  based  on  gross 
earnings  per  mile,  but  as  a  rule  it  does  not  seem  to  be  carried  far.  It  was 
lately  pointed  out  that  the  Northwestern  is  now  earning  more  than  double 
its  dividends,  putting  the  surplus  into  improvements,  which  do  not  raise 
stock  value  so  high  as  larger  dividends  would  ;  and  that  in  1900  all  the 
roads,  improving  property  likewise,  earned  above  interest  and  dividends  a 
surplus  of  ^142,000,000.  Though  recent  earnings  have  been  perhaps 
temporarily  high,  the  effort  of  different  states  to  find  the  real  cost  of  rail- 
roads for  taxation  will  doubtless  lead  soon  to  taking  for  the  public,  in  lower 
fares  and  freights,  a  large  part  of  increasing  earnings.  The  state  may  dis- 
regard over-capitalization,  and  Congress,  in  fixing  rates,  would  not  be  sub- 
ject to  state  charter  contracts.  Henry  C.  Adams,  Statistician  of  the  Inter- 
State  Commission,  who  recently,  with  others,  took  a  careful  inventory  for 
Michigan  of  all  its  railroads,  urged  before  the  Industrial  Commission  (Vol. 
IX.)  the  importance  of  finding  the  cost  to  reproduce  railroads. 

It  has  been  argued  that  a  railroad  deserves  a  large  increase  of  value 
because  the  value  was  made  by  its  construction  into  the  territory.  But  the 
road  was  no  more  essential  to  the  people  than  they  were  essential  to  it. 
Sometimes  they  have  given  gre.it  bonuses.  The  Burlington  and  Missouri 
River  road,  up  to  1890,  had  realized  $8,452,203  from  its  land  grants,  and 
|2, •^72,800  from  bonds  donated  by  counties  and  towns.  (A.  G.  Warner, 
P.  S.  Quarterly,  1 89 1.) 


The  Railroad  Problem.  6 1 

by  debt  and  failure.    The  public  good  is  then  provided 

for. 

Is  Our  Railroad  Service  Perfect  Then  in  every  respect, 
needing  no  attention  from  the  public  ?  No  ;  the  agita- 
tion against  it  has  been  well  grounded.  The  fault  is  not 
in  efficiency  of  service,  nor  in  average  charges.  It  is  in 
secret  discrimination.  As  mentioned  in  the  case  of  the 
oil  company,  railroads  have  built  up  one  shipper  by  pull- 
ing down  others — charging  them  higher  rates,  neglect- 
ing to  furnish  them  cars,  and  delaying  their  shipments 
along  the  way.  Through  inequality  of  charges  they 
have  also  built  up  some  towns  by  checking  the  growth 
of  others.  Railroad  discrimination  has  been  the  worst 
of  all  the  forces  of  monopoly. 

Necessary  Discrimination. — But  much  of  the  discrimi- 
nation in  railroad  charges  results  in  benefit  to  all,  and 
must  be  allowed.  It  arises  from  charging  what  the  traffic 
will  bear,  which  principle  is  necessary  to  develop  the 
most  business,  and  to  render  the  most  service  to  the 
most  people.  Local  fares,  and  tickets  not  limited  in 
time,  are  sold  high,  because  persons  using  them  will  pay 
well.  Excursion  rates  are  put  low,  for  otherwise  nobody 
would  go.  Cutting  down  local  fares  to  the  excursion 
level,  though  it  would  increase  traffic,  would  give  no 
profit  at  all  from  total  passenger  receipts.  The  extra  traffic 
secured  by  means  of  excursions,  at  a  little  profit  above 
cost  of  running  the  extra  trains,  may  have  enabled  the 
company  to  put  local  fares  as  low  as  they  are,  and  still 
earn  in  the  aggregate  a  fair  return  on  capital. 

Extra  Traffic  Secured  by  giving  a  through  passenger 
fare  somewhat  lower  per  mile,  necessitated  by  the  dis- 
tance, and  by  competition  with  other  roads,  adds  to 
profits  in  the  same  way.     A  city's  possession  of  pas- 


62  TJic  Plain  Facts  as  to  the  Triists. 

senger  facilities  from  several  competing  roads  arose  from 
its  size  and  location,  and  may  be  only  one  among  other 
natural  and  proper  advantages.  The  case  is  similar  with 
freight  rates.  They  have  been  lowered  everywhere  to 
increase  traffic,  but  in  each  case  lowering  is  stopped  above 
the  point  at  which  more  traffic  does  not  give  more  aggre- 
gate profit. 

Long  Distance  Rates  Must  be  Low,  or  goods  would  not 
be  shipped.  There  would  be  no  wheat  industry  in 
Dakota  if  freight  rates  to  the  sea  were  anywhere  near 
the  local  basis.  Sometimes  freight  from  a  side  line  must 
be  taken  at  the  junction  for  less  than  freight  there  started, 
or  the  shippers  on  the  side  line,  such  as  sugar  beet 
growers,  could  not  engage  in  the  business.  Coal  and  ore 
could  not  be  shipped  unless  carried  at  very  low  rates  ; 
hence  the  necessity  for  first,  second,  third,  and  fourth 
classes  of  freight.  The  rate  on  each  is  intended  to  be 
placed  where  increasing  traffic  yields  most  aggregate 
profit.  The  more  valuable  goods,  in  the  higher  classes, 
must  bear  the  road's  general  expenses ;  the  cheaper 
freight  yields  but  little  above  direct  cost  of  handling  it. 
Fragile  goods,  such  as  furniture,  on  account  of  risk  of 
breakage,  must  bear  an  addition  to  the  first-class  rate.' 

'Varying  Rates  of  Profit  in  Other  Business  are  quite  common. 
Coffee  and  sugar  are  retailed  at  prices  very  near  cost.  The  same  is  partly 
true  of  the  staple  dry  goods  called  domestics.  Low  profit  on  these  is  bal- 
anced by  high  profit  on  other  goods,  especially  with  the  finer  dry  goods, 
bought  by  people  better  able  to  pay,  and  with  shelf  groceries  to  which 
dealers  may  not  allow  price  cutting  to  extend.  On  some  kinds  of  small  job 
printing  the  profit  is  so  low  that  shops  could  not  exist  if  it  became  the  rule 
with  all  work.  These  prices  are  lowered  by  competition  from  other  towns, 
as  with  deposit  slips  and  hotel  stationery  ;  and  occasionally  by  miscalcula- 
tion a  low  price  is  given  that  is  afterward  insisted  on  by  the  customer. 
Such  prices  yield  a  little  profit  above  cost  incurred  by  taking  the  job,  but 
contribute  nothing  toward  rent,  management,  etc. 


The  Railroad  Problem.  63 

Some  Cases  of  Discrimination  Seem  Monstrous. — The 
rate  on  French  hops  from  Boulogne  to  London  was  at 
one  time  17s.  6d.  per  ton,  while  35s.  were  charged  on 
shipments  from  intermediate  stations.  Here  it  was  a 
foreigner  who  was  favored.  In  an  American  state,  ship- 
pers in  other  states  have  been  favored  hkewise,^ 

But  Even  Here  There  is  Another  View.  Freight  may  be 
paid  on  the  hops  before  reaching  Boulogne.  At  the  des- 
tination the  total  charge  on  the  through  shipper  is  fully 
as  high  as  on  the  local  shipper.  The  discrimination  only 
balances  the  local  shipper's  monopolistic  advantage  in 
location.  As  price  of  a  commodity  is  fixed  by  the  cost 
of  that  portion  of  the  necessary  supply  which  is  placed 
in  market  with  greatest  aggregate  difficulty,  lowering 
freight  to  the  local  shipper  would  only  increase  his 
profit,  without  lowering  prices  to  consumers.  Local 
people  are  favored  in  the  same  way  when  they  ship  to  dis- 
tant markets.  Without  lower  rates  on  long  hauls,  which 
cost  the  railroad  no  more  in  terminal  handling  than  short 
hauls,  far-reaching  commerce  could  not  exist,  and  local 
people  would  have  a  monopoly  as  in  the  days  of  wagon- 
ing, keeping  population  small.  It  seems,  therefore,  that 
to  maintain  civilization,  there  must  be  some  discrimina- 
tion.    To  suppress  it  completely  would  be  to  sacrifice 

The  Exact  Cost  of  Hauling  an  Article  of  Freight  cannot  be  deter- 
mined. On  the  same  train  many  other  things  are  carried,  to  different  places, 
sometimes  with  a  full  load  returning,  and  sometimes  with  empty  cars,  a 
trip  with  the  latter  costing  the  road  nearly  as  much  as  a  trip  with  a  full 
load.  A  share  of  officers'  salaries,  repairs,  taxes,  and  interest  could  not 
be  assigned  to  each  freight  rate.  Hence,  the  only  way  is  to  make  total 
income  yield  a  fair  profit  on  capital,  without  attempting  to  have  a  uniform 
rate  of  profit  on  each  article  shipped  ;  and  to  make  every  rate  reasonable  to 
other  rates,  so  that  no  person,  town,  or  commodity  is  placed  at  a  dis- 
advantage. 

^  Hadley,  Railroads,  181. 


64  TJie  Plain  Facts  as  to  the  Trusts. 

many  local  consumers  for  the  sake  of  a  few  producers. 
The  latter  have  some  advantage  anyhow  in  quicker  time 
and  closer  acquaintance.  The  fact  that  Owensboro 
wagons  are  sold  in  Jackson,  and  Jackson  wagons  in 
Owensboro,  two  places  separated  by  over  300  miles, 
shows  freights  to  be  so  low  that  the  manufacturer  has 
many  states  to  sell  in,  and  the  local  consumer  many 
states  to  buy  in,  both  being  relieved  from  monopoly. 

What  the  Traffic  will  Bear. — Charging  varying  rates, 
according  to  what  the  traffic  will  bear,  is  simply  using  all 
sources  of  profit,  making  the  most  at  every  point,  as  a 
butcher  saves  horns,  hoofs,  and  bristles,  which  may  yield 
but  little  above  cost  of  saving  and  marketing.  He  is 
thus  enabled  to  sell  meat  cheaper,  and  still  have  a  fair 
aggregate  profit.  This  is  considered  the  correct  system 
of  railroad  charges  when  present  gain  is  not  secured  by 
sacrificing  the  future,  but  when  the  present  interests  of 
the  road  are  viewed  as  bound  up  with  those  of  all  its 
patrons,  especially  the  local  people,  who,  as  its  main- 
stay, should  be  built  up  to  the  utmost.  To  hold  man- 
agers to  the  latter  view  is  considered  to  be  the  province 
of  legislation  (Hadley).  Railroad  owners  and  the  public 
are  then  benefited  alike.  The  true  interests  of  any  class 
seldom  conflict  with  those  of  other  classes. 

The  Wrong  in  This  System  is  in  abuses.  These  ap- 
pear when  shippers  at  local  points  are  charged  more  than 
they  can  bear,  and  are  driven  out  of  business  by  their 
competitors  enjoying  lower  rates  at  competing  points. 
There  seems  to  be  no  reason  why  the  total  charge  on 
the  local  shipper  should  not  be  at  least  as  low  as  on  any 
other.     He  could  not  then  be  driven  out,*     Generally 

'  The  road  may  be  enabled  to  lower  local  rates  by  taking  at  reduced 
charges  through  shipments  for  export,  which  do  not  compete  with  the  local 


TJie  Railroad  Problem.  65 

perhaps  the  charge  should  and  does  decrease  as  the  dis- 
tance decreases,  though  not  in  just  the  same  proportion. 
If  freight  rates  are  too  low  to  a  distant  region,  the  total 
labor  and  capital  employed  in  producing  and  transport- 
ing its  products  get  from  their  value  where  sold  a  smaller 
return  than  if  the  products  had  been  grown  nearer  mar- 
ket, and  had  required  less  transportation.  On  the  other 
hand,  the  same  result  may  be  caused  by  freight  rates  so 
high  as  to  restrict  production  to  near  territory  less  fertile 
than  that  more  distant,  preventing  the  best  territorial 
division  of  labor.  By  reason  of  the  great  fertility  of 
eastern  Kansas  and  Nebraska,  their  low  freights  on  grain 
were  doubtless  an  advantage  to  the  whole  country  and 
to  the  railroads,  despite  the  ill  effect  on  grain  growing  in 
the  Northeast ;  but  the  western  portions  of  those  states 
were  settled  too  soon,  and  the  freight  rates  necessary  to 
maintain  the  roads,  from  the  traffic  offered,  caused  hard- 
ship to  settlers  for  a  time,  while  their  lack  of  prosperity 
made  the  roads  unprofitable.  Collection  by  the  railroad 
of  a  reasonable  profit  will  usually  prevent  transportation 
involving  a  waste  of  energy,  whether  from  regions  too 
far,  or  from  too  much  transportation  over  shorter  dis- 
tances. This  custom  of  making  every  shipment  yield  a 
profit  over  the  cost  it  necessitates,  and  also  to  bear  a 
share  of  general  fixed  costs  when  this  does  not  prevent 
the  shipment  from  being  made,  leads  too,  perhaps,  to  a 
fairly  just  system  of  charges,  as  well  as  to  a  desirable 
measure  of  transportation.^ 

shipper.  With  profit  from  such  business,  a  road  may  give  its  local  patrons 
some  of  the  advantage  possessed  by  those  living  on  competing  lines  better 
situated. 

'Newcomb,  69,  73.  The  Inter- State  Commission  in  1889  allowed  New 
York  roads  to  charge  the  same  rate  on  milk  from  every  station  at  distances 
varying  from  21  to  183  miles,  consumers  being  benefited,  and  the  market  not 
being  over-supplied,     Where  xmembarrassed  by  the  long  and  short  haul 

5 


66  TJlc  Plain  Facts  as  to  the  Trusts. 

The  Worst  Practice  is  giving  one  shipper  lower  rates 
than  others  on  the  same  traffic.  In  1879  ^^^^  the  New 
York  Central's  total  freight  business  was  done  at  rates 
specially  agreed  on.  Of  the  business  done  at  Syracuse, 
over  three-quarters  was  at  special  rates.^  The  evil  of 
this  was  not  then  realized.  Eventually  it  harmed  the 
railroads  by  ruining  customers  and  injuring  supporting 
towns,  and  also  by  enabling  the  Standard  Oil  Company, 
as  the  only  important  shipper  in  its  line,  to  dictate  its 
own  rates  by  threatening  to  withdraw  its  patronage.  No 
matter  how  low  a  rate  may  be,  a  shipper  may  be  ruined 
if  competitors  have  a  rate  still  lower.  He  could  do  bet- 
ter with  a  higher  rate  if  it  were  charged  to  all.^ 

The  Life  Blood  of  Industry. —  There  are  few  mer- 
chants who  will  not  lower  price  a  little  to  make  a  large 

clause,  and  guided  only  by  the  rule  to  be  reasonable  and  just,  the  Commis- 
sion has  been  able  to  make  rulings  least  open  to  criticism.    (Dabney,  227. ) 

^  Railroad  Tyranny  in  the  Past. — It  was  felt  then  that  the  companies 
had  a  full  right  to  make  any  rates  they  chose — to  resort  to  unmitigated 
tyranny,  in  discrimination  between  persons,  between  places,  or  between 
commodities.  In  1884  coal  carried  90  miles  to  Philadelphia  was  sold  at 
$(>.So,  against  $5.70  at  Boston,  354  miles  distant.  Philadelphia,  which 
largely  supported  the  roads,  then  paid  extra  on  coal,  by  reason  of  discrimi- 
nating freights,  a  sum  estimated  at  $3,750,000  a  year.  The  freight  on  a 
tub  of  butter  brought  165  miles  to  New  York  was  75c.,  but  when  brought 
1,000  miles  from  Elgin,  111.,  it  was  30c.  In  1884  the  grain  rate  from 
Chicago  to  New  York  varied  loc.  per  bushel  within  60  days.  In  1878 
this  rate  was  iSc.  to  New  York  but  25c.  to  Pittsburgh,  half  way.  Freight 
from  inland  points  in  Pennsylvania,  bound  for  the  West,  was  often  shipped 
first  to  New  York  to  get  its  low  rates ;  and  freight  in  different  states  was 
sent  to  a  distant  competing  point  and  shipped  back  to  its  destination  at  a 
local  point,  to  avoid  the  high  rate  of  the  latter.  One  special  rate  at  Syra- 
cuse was  only  a  fifth  of  the  full  rate.  Never  did  a  peddler  depart  further 
from  the  one-price  system.  A  promise  not  to  ship  by  canal  was  a  reason 
for  some  of  the  special  rates.  These  facts  were  brought  out  by  the  Hep- 
burn Committee  of  the  New  York  Legislature  in  1881,  in  5,000  pages  of 
testimony.      (J.  F.  Hudson,  Railways  and  the  Republic.') 

SHadley,  Railroads,  108-124. 


TJic  Railroad  Problem.  67 

sale,  or  to  get  a  valuable  customer.  Here  the  harm  is 
slight.  But  the  case  is  different  with  monopolistic  rail- 
roads. Their  service  is  the  life  blood  of  modern  indus- 
try, and  must  circulate  impartially  to  preserve  health  in 
the  commercial  body. 

Government  Ownership  Not  the  Remedy. —  Wrongful 
discrimination  could  be  effectually  prevented  by  govern- 
ment ownership.  But  would  equality  for  all  balance  the 
loss — in  lower  efficiency,  in  slower  improvement,  and 
perhaps  in  higher  cost  ?  Most  people  think  not.  Hence, 
a  continuance  of  the  policy  of  regulating  railroad  traf- 
fic by  law,  though  this  has  become  difficult  in  the  com- 
plexity of  the  business,  seems  to  promise  far  better 
results  in  America  than  government  ownership.^ 

Government  Control,  as  obviating  necessity  for  govern- 
ment ownership,  affords  now  an  outlook  for  success  sat- 
isfactory to  reasonable  expectation.  Where  there  is 
much  traffic,  competition  among  different  railroads,  to 
excel  in  service  and  to  lower  rates,  is  probably  as  sharp 
as  the  most  desirable  public  service  requires.  While  there 
is  a  disposition  among  competing  roads  to  agree  on  and 
maintain  rates  yielding  a  fair  profit,  there  is  usually  a 
tendency  to  make  concessions  in  order  to  develop  busi- 
ness. Unfortunately,  the  benefit  of  this  tendency  in  low- 
ering all  rates  is  lessened  by  the  inducement  to  lower 
them  most  for  the  largest  shippers. 

Charges  Must  be  High  Enough. — It  is  best  for  the 
people  that  the  railroads  charge  enough,  not  only  to 
maintain  safe  and  effective  equipment  and  pay  good 
wages,  but  also  to  pay  fair  dividends,  so  that  controlling 
owners  will  receive  sufficient  regular  return  on  their 
capital  to  escape  the  temptation    of   speculative  gain. 

1  Hadley,  402. 


68  TJie  Plain  Facts  as  to  the  Trusts. 

Cashiers  are  paid  well  to  make  them  honest.  Fair  wages 
must  be  paid  to  get  good  service  from  anybody  who  knows 
what  others  are  getting.  It  is  the  same  with  capitalists. 
If  they  are  to  save  capital,  and  to  maintain  it  at  its  best, 
it  must  be  allowed  to  yield  them  a  full  return. 

State  Regulation  of  Passenger  Rates  seems  to  be  all 
that  could  be  desired.  In  the  sparsely  settled  Upper 
Peninsula  of  Michigan  the  earliest  rate  of  5c.  a  mile  was 
reduced  by  the  legislature  in  1889  to  4c.  and  was  about 
to  be  reduced  by  the  legislature  of  1901  to  3c.,  which 
has  long  been  the  limit  in  the  Lower  Peninsula.  The 
State  Commissioner  of  Railroads,  in  compliance  with 
law,  required  the  Wabash  road  in  1901  to  lower  its  fare 
in  Michigan  from  3c.  to  2c.  a  mile,  because  the  passenger 
earnings  of  the  Michigan  portion  of  its  lines  had  reached 
a  yearly  aggregate  of  ;^3,ooo  per  mile.  The  Grand  Rapids 
and  Indiana  rate  was  reduced  to  2  i^c,  its  passenger  earn- 
ings having  reached  ;^ 2,000  per  mile.  The  Lake  Shore 
voluntarily  reduced  its  rate  from  3c.  to  2c.  nearly  a  year 
before  it  would  have  been  required  to  do  so  by  the  law 
of  1900  that  repealed  the  special  charters  granted  before 
1 850.  By  that  repeal  of  the  earliest  charters,  the  general 
law  fixing  passenger  rates  was  made  to  apply  to  all  roads 
in  the  state.  Beginning  January  i,  1902,  the  Michigan 
Central,  on  its  main  line  in  Michigan,  whose  passenger 
earnings  reach  ;^4,ooo  per  mile,  reduced  its  rate  to 
2c.,  and  the  Detroit  and  Milwaukee  to  2^c.  Com- 
peting roads,  without  the  large  earnings  requiring 
the  reduction,  find  it  necessary  to  lower  rates  at  many 
points  to  meet  the  competition  of  the  lines  mentioned. 
The  other  states  that  have  fixed  rates  by  law  as  low  as 
2c,,  varying  up  to  3c.,  are  Maryland,  New  Hampshire, 
and  Wisconsin.     Connecticut  has  the  one  legal  rate  of 


Tlie  Railroad  Problein.  6g 

2c.  The  rate  by  New  York  law  for  the  New  York 
Central  is  2  cents.'  The  law  repealing  the  Michigan 
Central  and  other  old  charters  provided  for  suit  by  the 
company  against  the  state  for  damages.  An  important 
case  is  expected,  determining  in  some  particulars  the 
right  of  the  state  over  railways.  In  North  Dakota, 
after  three  years'  negotiations,  the  railroad  commission 
has  lately  secured  from  the  Northwestern,  the  St.  Paul, 
and  the  Great  Northern  companies  an  agreement  to  re- 
duce freight  rates,  and  to  lower  the  passenger  fare  from 
4c.  to  3c.  Similar  reductions  are  expected  in  South 
Dakota  (the  Black  Hills  rate  from  5c.  to  4c.).  The 
Minnesota  senate  has  just  adopted  a  resolution  directing 
the  railroad  commission  to  order  fares  reduced,  with  a 
minimum  of  2c.  and  a  maximum  of  2  3^c.  An  Iowa 
legislative  committee  has  just  reported  favorably  on  a 
bill  to  reduce  fares  in  that  state  to  2c. 

'  A  Two-Cent  Fare  Nearly  Fifty  Years  Ago. — The  New  York  Cen- 
tral's passenger  fare  was  fixed  at  two  cents  by  the  legislature  in  1853,  when 
the  New  York  roads  forming  the  Central  were  consolidated.  It  is  said  the 
Central  Company  spent  hundreds  of  thousands  of  dollars  to  defeat  the  low 
fare  measure,  but  that,  by  reason  of  the  low  fare's  effect  to  increase  travel, 
the  great  sum  spent  was  earned  back  the  first  year.  The  legislature  refused 
to  put  the  rate  above  two  cents  during  the  war,  when  railroads  had  to  bear 
an  internal  tax.  This  two-cent  rate  must  be  met  of  course  by  competing 
lines.  Some  think  that  railroad  companies,  which  generally  resist  legisla- 
tive reductions,  do  not  give  rates  low  enough  to  find  out  the  figure  at  which 
large  traffic  will  give  greatest  total  profit.  They  doubtless  try  to  reserve 
the  traffic  that  will  pay  full  fare,  while  attracting  other  travel  with  excur- 
sion rates.  A  short  experimental  electric  line  in  Michigan,  stopping  at  a 
small  village,  was  run  at  a  loss  for  two  years,  but  finally  developed  a  pay- 
ing business.  A  railroad  president  testified  that  ^10  would  be  a  profitable 
rate  for  passengers,  from  New  York  to  San  Francisco,  if  the  cars  were 
always  filled.  However,  aside  from  pleasure  traveling  in  excursions,  put- 
ting fares  below  two  cents  would  probably  not  increase  travel  sufficiently 
to  balance  the  loss.  Lowering  fares  on  street  cars  increases  travel  largely, 
but  they,  unlike  railroad  traveling,  save  time  for  the  mass  of  the  people. 


70  TJic  Plain  Facts  as  to  the  Trusts. 

State  Control  Protects  the  People.  —  Laws  requiring 
roads  to  sell  1,000-mile  tickets  good  for  any  member  of 
a  family  have  been  proposed  in  the  Michigan  legislature. 
A  Massachusetts  law  of  1900  requires  workingmen's 
trains  to  be  run  into  Boston  when  ordered  by  the  rail- 
road commission,  with  tickets  for  1 5  miles  at  a  rate  not 
over  ^3  per  mile  per  year,  or  ^i  per  mile  per  quarter. 
State  governments  exercise  ample  power  to  enact  laws 
for  the  safety  of  railroad  passengers  and  employees. 
Between  1892  and  1901,  though  after  long  struggle 
against  the  requirement,  ^17,405,000  were  spent  by  rail- 
roads at  Chicago  in  elevating  5  5  miles  of  line,  to  comply 
with  law  requiring  track  elevation  at  street  crossings  and 
elsewhere ;  and  ordinances  have  been  passed  for  elevating 
about  as  much  more.  City  councils  have  power  to  reg- 
ulate speed  of  trains  within  the  city  limits,'  and  to  require 
crossing  gates.     The  present  requirement  of  automatic 

^To  Resist  Regulations,  a  railroad  company,  it  would  seem,  will  not 
move  its  shops  from  a  city  when  the  authorities  require  only  what  is  right, 
and  with  the  honesty  and  ability  that  brook  no  threats  nor  bribes.  Such 
removals  have  been  threatened  in  some  cases.  Formation  of  a  habit  of 
obedience  in  railroad  companies  has  undoubtedly  been  checked  by  faulty 
control,  with  laws  too  stringent  to  be  enforced,  or  too  lax,  and  with  officials 
and  legislatures  whose  pliable  character  suggested  the  corrupting  influence 
to  which  they  yielded.  A  Michigan  law  empowers  the  commissioner  to 
order  a  station  established  where  conditions  demand  it.  The  Inter-State 
Law,  and  some  state  constitutions,  require  railroads  to  interchange  traffic. 
Requiring  reasonable  connection  of  passenger  trains,  sometimes  purposely 
avoided,  has  not  been  a  practice  in  some  states.  Usually  the  companies 
try  to  make  good  connections. 

State  Inspection. — The  mechanical  engineer  of  the  Michigan  railroad 
department  inspects  annually  every  railroad  track,  bridge,  and  switch  in 
the  state  ;  and  the  approval  of  the  commissioner  must  first  be  obtained  for 
opening  a  grade  crossing,  and  for  stringing  wires  across  a  track.  The 
latter  sees  that  the  railroad  laws  are  obeyed,  and  investigates  complaints  of 
their  infraction.  Generally  the  companies  comply  quickly  when  he  calls 
their  attention  to  the  law,  without  his  issuing  an  official  order. 


Tlic  Railroad  Problem.  7 1 

couplers  and  air  brakes  on  all  freight  trains,  which  was 
made  by  a  law  of  Congress,  passed  in  1892  and  taking 
effect  in  1900,  has  caused  a  diminution  of  35  per  cent 
in  the  number  of  persons  killed  while  coupling  cars,  and 
of  52  per  cent  in  the  number  injured, 

Regulation  of  Freight  Rates,  though  far  more  impor- 
tant than  regulation  of  passenger  rates,  has  been  less 
successful.  Freight  rates  are  more  secret,  and  must  vary 
greatly  according  to  class  of  goods,  quantity  shipped, 
and  necessity  for  low  charges  in  some  cases  to  develop 
business. 

Serious  Discrimination  Still  Continues. — In  its  report 
for  1900  the  Inter-State  Commerce  Commission  says 
that  under  the  present  law  it  is  "  inevitable  that  frequent 
discrimination  should  occur,  and  endless  acts  of  injustice 
be  committed,  both  in  performing  service  and  in  apply- 
ing rates."  That  this  discrimination  favors  the  few  at 
the  expense  of  the  many,  aids  the  strong  and  handicaps 
the  weak,  often  subjecting  the  latter  to  destructive  disad- 
vantage. That  it  has  been  easy  to  get  the  roads  to 
adopt  and  publish  rates  satisfactory  to  shippers,  but  that 
"  in  traffic  actively  competitive  it  has  been  found  impos- 
sible to  secure  actual  observance  of  rates  published." 
Raising  of  rates  also  is  effected,  by  changing  an  article 
to  another  class  ;  and  the  orders  or  rules  of  the  Commis- 
sion are  habitually  disregarded.  The  Commission  said 
in  its  report  in  1899  :  "There  is  probably  no  one  thing 
to-day  which  does  so  much  to  force  out  the  small  oper- 
ator, and  build  up  trusts  and  monopolies,  as  discrimina- 
tion in  freight  rates."  ^ 

'  The  Inter-State  Commission,  and  the  National  Association  of  State 
Commissioners,  have  been  endeavoring  to  secure  from  the  railroads  a  uni- 
form classification  for  the  whole  country. 


J  2  The  Plain  Facts  as  to  the  Trusts. 

Shading  Rates  for  Large  Shippers  must  be  reduced  to 
the  minimum,  it  would  seem,  to  prevent  undue  growth 
of  great  cities  at  the  loss  of  smaller  places,  and  to  save 
the  less  important  shippers  from  ruin.  Only  for  solid 
economic  reasons  should  people  be  drawn  into  large 
cities,  and  the  gap  widened  between  ordinary  men  and 
the  princes  of  industry.  The  much-desired  railroad  com- 
petition is  the  cause  of  the  trouble.  Vicious  discrimina- 
tion seems  impossible  to  prevent  without  permitting  pools.^ 

The  Inter-State  Law. — A  party  aggrieved  has  access  to 
the  Commission,  and  to  the  courts,  under  the  Inter-State 
Commerce  Law.  But  this  law  apparently  is  valuable 
less  for  what  it  is  than  as  a  start  toward  what  it  may  be 
made.  By  clearly  revealing  the  difficulties,  it  has  pre- 
pared the  way  for  their  removal.  At  the  convention 
held  in  Milwaukee  in  1900  by  state  railroad  commis- 
sioners, at  which  nineteen  states  and  the  Inter-State 
Commission  were  represented,  it  was  unanimously  recom- 
mended that  Congress  give  to  the  latter  the  power  to  fix 
rates.  Material  change  is  needed  to  make  the  Inter- 
State  Law  a  means  of  effective  control.  Senator  Cul- 
lom's  bill  for  this  purpose  has  been  held  back  session 
after  session  by  a  Senate  committee.^  A  bill  passed  by 
the  lower  house  of  Congress  several  years  ago  was 
thought  to  go  too  far  in  its  restrictions  on  railroads.  A 
bill  considered  very  good  passed  the  House  in  1895,  and 
"  would  unquestionably  have  received  the  support  of  a 

For  discriminating  favors,  large  shippers  reward  a  railroad  by  giving  it 
their  business,  promptly  paid  for,  which  keeps  the  road  steadily  busy  ;  and 
they  accommodate  it  by  sending  more  or  less  freight  according  to  its  un- 
occupied capacity. 

•  These  are  discussed  in  Chapter  VIII.,  and  discrimination  is  further 
treated  in  Chapter  VI.,  in  connection  with  trust  monopolies. 

» Albert  Watkins,  l^he  Forum,  Oct.  1 901. 


The  Railroad  Problem.  73 

large  majority  of  the  Senate  "  had  not  the  closing  of 
the  session  prevented  a  vote  upon  it.^ 

^Some  changes  recommended  by  the  Industrial  Commission  for  the 
Inter-State  Law  are  summarized  near  the  end  of  Chapter  VI. 

Defects  of  the  Inter-State  Law. — "To  state  that  the  law  in  its  pres- 
ent condition  cannot  be  enforced  is  only  to  repeat  what  has  already  been 
said.  Until  further  and  important  legislation  is  enacted,  the  best  efforts  at 
regulation  must  be  feeble  and  disappointing."  (Inter-State  Report,  Jan- 
uary,  1899.) 

The  Commission's  Orders  to  Make  Reasonable  Rates  and  classifica- 
tion, according  to  the  Inter-State  Law,  have  not  been  obeyed  by  the  rail- 
roads except  in  cases  of  little  importance,  or  where  the  justice  is  so  clear 
that  disregard  might  provoke  public  opposition.  The  reason  is  that  the 
orders  are  not  final,  having  to  be  enforced  through  courts,  where  with  new 
evidence  the  roads  may  delay  a  case  several  years.  To  give  or  receive  a  rate 
discriminating  in  favor  of  a  shipper,  is  punishable  by  fine  and  imprisonment. 
For  discriminating  in  favor  of  a  certain  town,  or  a  certain  commodity 
shipped,  the  railroad  must  correct  the  rate  or  classification,  and  may  be 
sued  for  damages.  Discrimination  in  favor  of  a  shipper  is  secret ;  the  other 
two  kinds  are  not.  The  first,  though  less  common  since  the  law  was 
enacted,  will  continue,  without  pooling,  to  be  given  by  a  road  to  its  favored 
large  shipper,  on  whose  freight  its  vital  revenue  largely  depends.  The 
effect  of  this  to  build  up  the  oil  and  beef  combines  is  well  known,  and  the 
sugar  trust,  believed  by  some  to  have  the  same  advantage,  is  at  least  in  a 
position  to  demand  it. 

A  Rate  to  an  Intermediate  Point  may  be  and  usually  is  as  high,  under 
the  Inter-State  Law,  as  the  rate  to  the  more  distant  competing  point,  but 
not  higher  except  under  special  conditions,  such  as  those  of  Texas  points 
reached  from  New  York  by  water,  and  those  of  Northwestern  points  reached 
by  the  Canadian  Pacific  road.  These  points  have  lower  rates  than  other 
points  nearer  New  York.  This  is  considered  as  justifiable  at  present,  but 
as  an  evil  to  be  remedied  by  perfected  regulation.  By  reason  of  the  com- 
plicated network  of  routes,  there  is  still  much  discrimination  that  holds 
back  the  growth  of  towns  and  large  districts.  A  large  town,  especially  in 
the  South,  is  made  a  basing  point  to  which  a  low  rate  is  given,  and  this, 
added  to  the  local  rate  from  there  to  a  small  town  further  on,  makes  the 
high  rate  that  keeps  the  latter  town  small.  Rates  from  New  York  to  the 
central  West  are  percentages  of  the  Chicago  rate — 78  per  cent  to  Detroit, 
87  to  Cincinnati,  1 16  to  East  St.  Louis.  After  one  discriminating  rate  has 
been  corrected  by  the  Commission,  roads  serving  towns  located  at  some  dis- 
tance laterally  may  and  do  so  lower  their  rates  as  to  restore  the  discrimina- 
tion as  before  ;  and  may  even  be  excused,  in  view  of  their  duty  to  build  up 


74  TJie  Plain  Facts  as  to  the  Trusts. 

Public  Desire  for  Removal  of  Discrimination  in  rates  has 
not  yet  been  strong  enough  to  overcome  in  Congress  the 
opposition  of  those  who,  not  discerning  that  rate  com- 
petition with  railroads  is  necessarily  evil,  still  fear  pool- 
ing as  dangerous  monopoly ;  nor  has  it  been  strong 
enough  to  overcome  adverse  influence  from  some  rail- 
road companies  that  object  to  the  regulation  proposed. 
The  main  opposition  to  pooling,  it  is  said,  comes  from 
some  strong  railroad  companies  that  are  already  getting 
satisfactory  rates.'  There  is  need  here  for  public  awaken- 
ing. The  people  and  the  country  are  being  injured,  and 
the  railroads  as  a  whole  are  not  being  benefited.  The 
trivial  favor  of  giving  free  passes  to  people  of  influence 
in  business  or  politics  has  been  legislated  against  ineffect- 

and  protect  their  own  towns.  So  far-reaching  is  the  interdependence  of  rates 
that  to  determine  if  a  rate  on  wheat  from  Chicago  to  New  York  is  reason- 
able, it  might  be  necessary  to  consider  rates  on  similar  freight  to  every 
Atlantic  and  Gulf  port,  and  from  every  interior  starting  point. 

Correction  of  Unjust  Classification  applies  to  but  one  case,  leaving 
many  similar  cases  unremedied  in  adjacent  territory.  A  rate  on  live  hogs 
to  Boston,  standing  in  June,  1887,  at  46  per  cent  of  the  rate  on  dressed 
hogs,  was  changed  by  July,  1888,  to  135  per  cent.  The  Commission 
corrected  this  inequality  in  time  to  save  Boston  butchers  from  being  driven 
cut  of  business.  Such  discrimination  arises  from  favoring  the  product  of  a 
heavy  shipper  depended  upon,  or  of  a  town  where  competition  is  shaqi. 
Putting  the  rate  on  wheat  lower  than  that  on  flour  would  in  time  transfer  the 
immense  milling  business  of  Minneapolis  to  places  nearer  the  Atlantic  coast. 
Changing  hay  in  1900  from  sixth  to  fifth  class  shut  out  Western  shippers 
from  New  England.  To  pass  on  the  many  thousands  of  rates,  made  by 
hundreds  of  carriers,  would  be  an  endless  task,  whatever  the  Commission's 
power  to  enforce.  The  remedy  is  to  remove,  by  pooling,  the  competition 
that  causes  the  trouble.  A  manager  responsible  for  earning  a  sufficient 
income  for  his  road,  can  scarcely  afford  to  refuse  a  reduction  demanded  by  a 
large  shipper  who  is  about  to  take  his  business  to  another  manager  who 
will  not  refuse.  Unlike  in  other  business,  competition  can  never  avail  with 
naturally  monopolistic  railroads.  Under  a  pooling  agreement  the  other 
manager  would  refuse  too,  and  the  rate  would  be  the  same  for  all  shippers. 
(H.  T.  Newcomb,  P.  S.  Quarterly,  1896,  20I-22I.) 

>  Indus.  Com.  IV.  90. 


The  Railroad  Problem.  75 

ually,  and  still  strengthens  the  railroad  power.^  What- 
ever is  lacking  in  the  Inter-State  Law  can  doubtless  be 
supplied  by  Congress,  under  its  constitutional  power  to 
regulate  commerce,  if  an  earnest  effort  is  made  to  do  no 
more  regulating  than  is  needed,  and  in  a  spirit,  not  of 
antagonism,  but  of  exact  justice  to  all,  the  companies 
included.  Statutes  prompted  by  a  wrong  spirit,  and 
attempting  too  much,  are  evaded  by  the  railroads,  some- 
times because  they  cannot  be  obeyed,  and  tend  to  weaken 
the  force  of  law.  Some  such  statutes  were  enacted  by 
Western  States  about  twenty-five  years  ago  in  the 
Granger  movement,  when  there  was  a  strong  feeling 
among  farmers  against  railroads.^ 

1  Giving  Free  Passes. — The  Trunk  Line  and  Western  Passenger  asso- 
ciations recently  joined  in  a  movement  to  abolish  exchange  of  passes  be- 
tween roads,  to  be  extended,  it  was  said  at  first,  even  to  those  issued  to 
presidents.  The  Western  roads  finally  decided  not  to  enter  the  agreement, 
but  by  all  the  trunk  lines  it  was  put  into  effect  January  I,  I902,  and  at  the 
start  was  said  to  be  fully  observed,  though  indications  since  have  been  that 
it  will  not  last  long.  So  many  people  seek  or  accept  passes,  and  the  com- 
panies get  with  them  so  many  favors  without  money  cost,  that  a  strong  and 
united  effort  will  be  necessary  to  stop  the  practice  of  issuing  them  to  per- 
sons  not  in  the  railroad  business.  Some  public  officials  of  high  char.icter 
have  refused  passes,  on  the  ground  that  they  are  bribes.  Unfortunately 
this  is  not  the  case  with  many  public  men.  It  is  said  that  a  few  years  ago, 
when,  after  abolishing  its  passes  to  legislators,  a  New  York  road  found  it 
necessary  to  get  from  the  legislature  an  extension  of  a  sleeping  car  license, 
it  was  induced  to  issue  the  passes  by  fear  that  enough  members  would  not 
vote  for  the  measure.  There  is  said  to  be  an  agitation  among  public  offi- 
cials for  repeal  of  Wisconsin's  new  law  against  giving  passes.  Just  now 
there  is  a  bill  before  the  Iowa  legislature  to  require  railroads  to  furnish 
passes  to  all  public  officials.  By  such  a  law,  it  would  seem,  the  element 
of  bribery  would  be  removed. 

*  Beginnings  of  State  Regulation. — Both  in  America  and  in  Europe, 
about  1872,  the  possession  of  monopoly  power  by  railroads  was  suddenly 
realized,  and  legislation  to  protect  the  public  was  begun.  Previous  to  that 
time,  especially  in  America,  the  only  thought  was  to  get  more  roads.  The 
English  railroad  commission  was  then  established,  and  the  Continental  sys- 
tems of  state  railroads.     (Hadley,  Railroads,  22.)     American  state  com- 


^6  TJic  Plain  Facts  as  to  the  Trusts. 

Regulation  of  Local  Freights. — The  Inter-State  and 
other  laws  of  Congress  regulate  traffic  between  different 
states.  Regulation  of  local  freight  rates  by  state  law 
was  proposed  in  1901  in  the  legislature  of  Michigan. 
The  plan  was  to  have  the  Governor  appoint  two  special 
commissioners,  to  act  with  the  general  railroad  commis- 
sioner, with  the  power  to  fix  and  adjust  all  local  freight 
rates.  Though  the  bill  was  not  passed,  it  received  favor- 
able consideration.  The  legislators  who  had  charge  of 
it  say  there  is  need  for  such  a  law  in  local  freight 
rates  varying  widely  without  good  reason.^ 

missions,  first  appearing  then,  have  become  very  important.  About  200 
persons  connected  with  such  commissions  attended  at  San  Francisco  in  1901 
the  thirteenth  annual  meeting  of  their  association.  Among  the  subjects 
considered  by  this  association,  at  its  meetmg  in  Charleston  in  Pebruary, 
1902,  were  railroad  taxes,  fair  valuation,  rate  making,  necessary  legislation, 
and  delays  in  obeying  orders  of  commissioners.  The  state's  right  to  con- 
trol railroads  was  questioned  for  a  long  time,  but  is  now  being  thoroughly 
established. 

'Lowering  of  Rates  by  State  Commissions. — The  Te-xas  state  com- 
mission lately  reduced  a  rate  on  crude  oil  from  15c.  to  12c.  per  loo  pounds. 
The  .Southern  Association  of  Railroad  Commissioners  has  been  arranging  a 
plan  for  a  uniform  system  of  local  freight  rates  to  govern  all  Southern  roads. 
The  Nebraska  commission's  lowering  of  local  rates  in  1887  by  a  third, 
upheld  by  the  state  supreme  court,  resulted  in  a  compromise,  by  which  the 
companies  lowered  through  rates  on  coal,  lumber,  and  grain,  and  the  com- 
mission's local  reduction  was  lightened  by  about  half.  The  concession  from 
the  companies  was  a  great  advantage  to  the  vital  industries  of  the  state. 
Reduction  of  a  third  would  have  brought  local  rates  to  the  standard  of  Iowa, 
where  business  was  much  larger  than  in  Nebraska,  yielding  a  profit  from 
low  rates.  A  law  of  the  Nebraska  legislature  of  1893,  placing  maximum 
local  rates  29^^  per  cent  lower,  was  set  aside  as  unconstitutional  by  the 
United  States  court  in  1898,  on  the  ground  that,  allowing  no  profit,  it  took 
property  without  due  process  of  law.  (F.  H.  Dixon,  P.  S.  Quarterly, 
1898.)  After  the  compromise  of  1887  the  commission  congratulated  the 
state  on  the  fact  that  railroads  were  then  out  of  politics.  15ut  unfortunately, 
Populism  soon  arose,  with  which  antagonism  to  railroads  was  a  craze,  with 
little  pretense  to  view  justly  their  side  of  the  question  ;  and  for  self-protec- 
tion the  companies  entered  politics  again.     Dotli  with  railroads  and  with 


The  Railroad  Problem.  yy 

Former  laws  Too  Drastic. — Such  measures  as  that 
proposed  in  Michigan  have  been  enacted  or  agitated  in 
different  states.  They  have  usually  been  too  sweeping 
in  their  interference  with  the  roads,  tending  to  under- 
handed control  of  the  legislature  by  the  latter  to  protect 
themselves.  A  moderate  measure  would  be  most  likely 
to  be  enacted,  and  to  grow  into  an  effectual  means  of 
regulation.  A  harmful  law  enforced  would  lessen  the 
safety  and  efficiency  of  train  service,  discourage  railroad 
building,  and  injure  the  public  as  much  as  the  roads. 
The  Wisconsin  law  of  1874,  which  fixed  rates  so  low  the 
companies  could  earn  no  profit,  was  gladly  repealed  two 
years  later.^  A  measure  proposed  by  the  Farmers'  Al- 
liance in  Virginia  in  1892  was  not  passed  for  fear  it  would 
check  railroad  building.  By  nature,  injustice  seldom  fails 
to  react  on  its  perpetrators.  Their  meaning  well  makes 
no  difference.  In  some  states  popular  feeling  against 
railroads,  by  increasing  risk  of  investment,  necessitates  a 

city  monopolies,  it  seems  that  political  corruption  would  largely  disappear 
if  public  regulation  were  uniformly  wise  and  just.  But  the  corporations, 
by  swindling  stockholders,  and  by  alluring  the  public  into  giving  bonuses 
and  franchises,  were  perhaps  the  sowers  of  their  harvest  of  bitter  political 
opposition.  What  the  conditions  require  is  sounder  knowledge  among  the 
people,  and  the  ablest  and  purest  men  on  state  boards,  kept  there  by  sala- 
ries approaching  those  of  the  railroad  attorneys  with  whose  acuteness  they 
must  contend.  The  importance  of  having  ability  on  the  side  of  the  public 
may  be  inferred  from  the  fact  that  the  attorney  of  the  Northern  Securities 
Company,  said  to  be  the  highest  priced  lawyer  in  America,  has  declined  ap- 
pointments to  the  United  States  Supreme  Court,  and  to  other  lofty  positions. 

In  many  of  the  states  the  railroad  commission  has  power  to  fix  rates, 
but  apparently  it  has  not  been  widely  exercised.  The  Massachusetts  com- 
mission is  still  confined  in  this  respect  to  reports  and  recommendations, 
though  often  its  recommendations  have  been  so  fair  and  able  as  to  secure 
new  laws,  or  voluntary  obedience  from  the  railroads.  In  Missouri  rates  on 
staple  products  are  fixed  by  statute.  Ohio  fixes  the  rate  per  ton  per  mile  by 
statute,  and  also  passenger  fares,  which  are  thus  fixed  in  a  number  of  states. 

'Hadley,  174. 


78  TIic  Plain  Facts  as  to  tlw  Trusts. 

higher  return  on  the  capital  in  the  roads,  which  is  col- 
lected by  means  of  higher  charges,  or  by  making  service 
less  efficient  or  less  safe.  Low  profits,  with  smaller  busi- 
ness, caused  a  reduction  of  the  average  number  of  track- 
men, per  100  miles,  from    124  in  1893  to  102  in  1894.* 

1  Railroad  Laws  Must  Conform  to  Certain  Principles,  of  which  one 
of  the  best  brief  statements  is  given  by  Professor  Emory  R.  Johnson  in  the 
Political  Science  Quarlerly  of  March,  1900 — a  magazine  giving,  in  con- 
tributed articles  and  in  book  reviews,  the  cream  of  the  world's  current 
economic  thought.  The  following  is  a  skeleton  outHne  of  his  main  points, 
stated  mostly  in  different  language,  and  with  added  explanations : 

1.  Government  regulation  should  promote  gi-owth  of  railroad  facilities 
where  needed,  but  should  prevent  the  grosser  speculation,  and  waste  of 
capital  in  useless  parallel  lines.  By  the  Massachusetts  law  of  1894,  to 
which  the  Texas  law  is  similar,  the  state  commission  must  first  approve, 
after  expert  investigation,  every  issue  of  stock  or  bonds  by  steam  or  electric 
roads.  Investors  are  thus  protected  from  stock  watering.  In  New  York, 
and  in  four  New  England  states,  a  new  steam  or  electric  line  cannot  be  built 
until  the  commission  has  decided  that  "public  convenience  requires  it." 

2.  It  should  encourage  the  companies  to  act  together  in  harmony. 
Competition  in  excellence  of  service  is  beneficial,  but  in  rate  making  it  is 
vicious.  The  Inter-State  Law,  and  more  especially  the  anti  trust  act  of 
1890,  do  not  allow  the  cooperation  (pooling)  necessary  to  abolish  the  dis- 
crimination they  forbid,  Co5peration  between  roads  does  not  lead  to 
extortion.  Rivalry  of  the  Atlantic  and  Gulf  ports,  together  with  the 
water-ways,  is  what  makes  rates  low.  Managers  have  little  rate  making 
power.  A  company  must  give  its  shippers  proper  rates,  or  their  outside 
business  will  pass  to  shippers  on  other  lines.  The  government  commis- 
sion should  be  a  judge  between  shipper  and  carrier,  not  an  advocate  of 
either. 

3.  The  lowest  freights  (such  as  those  on  coal,  lumber,  and  on  long 
distance  grain)  must  cover  cost  of  hauling  and  some  profit.  These  will 
not  be  shipped  if  much  more  is  charged.  The  rate  must  be  less  than  the 
value  added  by  the  hauling.  Goods  of  high  value,  such  as  shoes  and  dry 
goods,  should  bear  higher  freight,  more  so  than  at  present,  Professor  John- 
son .says,  to  cover  the  road's  general  expenses,  interest,  etc.  Here  there  is 
more  ability  to  pay,  which  should  be  regarded  as  in  taxation.  Such  goods 
being  light,  even  a  high  freight  adds  little  to  their  retail  price.  With  the 
heavy  materials  there  may  be  no  ability  to  bear  a  share  of  general  ex- 
penses. Total  income  must  exceed  total  outgo  to  the  extent  of  a  fair 
return  on  capital. 


TJie  Railroad  Problem.  79 

We  Get  the  Advantages  and  Avoid  the  Evils.- — By  the 
present  American  system  of  private  ownership  of  rail- 

4.  Regulation  should  secure  for  all  shippers,  within  a  given  area, 
equality  of  advantage  on  similar  service.  In  some  other  area,  as  the  Far 
West,  lower  through  rates  may  be  necessary,  or  industry  would  stop ;  but 
there  local  rates  must  be  highest  to  yield  a  net  profit,  because  local  busi- 
ness is  smaller  than  where  population  is  denser.  Of  course  unjust  favor- 
ing of  persons  or  places  is  not  to  be  tolerated. 

5.  The  ultimate  aim  is  to  benefit  society  by  lowering  rates  as  fast  as  fair 
profit  and  healthy  improvement  of  road  will  permit.  This  purpose  is 
attained  by  a  moderate  policy,  just  to  the  companies  no  less  than  to  the 
people,  for  the  real  interest  of  both  parties  is  identical.  A  change  for  a 
special  social  purpose  may  sometimes  be  good,  as  in  lowering  rates  to 
enable  working  people  to  live  outside  of  a  crowded  city. 

Low  Fares  Everywhere  Have  Greatly  Benefited  Society,  by  enabling 
men  to  go  quickly  where  their  labor  is  wanted  most.  Austria's  heavy  re- 
duction of  fares  in  1890  was  a  successful  means  of  inducing  peasants  to  travel 
who  remained  in  the  lethargy  of  the  Middle  Ages.  Perhaps  it  is  their  third- 
class  rate  of  two  cents  a  mile  that  causes  Britons  to  travel  more  per  capita 
than  Americans.  In  Hungary  the  number  of  passengers  was  increased  from 
9,000,000  in  1887  to  35,000,000  in  1897,  and  the  average  distance  doubled, 
by  lowering  of  rates  through  the  system  of  a  uniform  charge  for  each  of  a 
number  of  zones  or  belts  of  territory  outward  from  the  starting  city.  The 
plan  of  some  writers,  gradually  to  enlarge  such  zones  until  a  whole  country 
was  in  one,  with  railroad  tickets  sold  as  stamps  without  regard  to  distance, 
would  necessitate  high  rates  for  short  rides,  to  earn  expenses,  and  by  exces- 
sive cheapness  of  long  distance  fares  would  cause  waste  of  time  in  traveling. 
This  plan  seems  to  make  of  uniformity  a  fetich. 

Rates  by  Carload  and  in  Small  Quantities. — E.  W.  Bemis,  in  The 
Forum  of  December,  1 899,  says  the  social  advantage  of  equality  is  so 
great  that  quasi-public  railroads  must  eventually  charge  freights  as  the  gov- 
ernment sells  stamps;  and  that  in  the  South  the  practice  of  taking  smaller 
quantities  at  carload  rates  is  already  carried  further  than  most  railroad  men 
have  been  willing  to  admit  as  practicable.  Dabney  (p.  136)  argues  that 
several  lots  filling  a  car  should  have  the  carload  rate.  E.  P.  Bacon,  in 
N.  A.  Review  of  January,  1902,  says  the  difference  in  cost  to  the  road  for 
handling  is  very  small.  Some  western  roads  have  lately  been  abolishing 
a  practice  of  permitting  different  shippers  to  unite  to  make  up  a  carload. 
In  Russia,  to  get  the  lowest  rate,  100  pounds  are  sufficient ;  in  New  South 
Wales,  six  tons,  which  may  consist  of  different  articles  or  commodities. 
The  public  good,  it  would  seem,  requires  that  the  difference  in  favor  of 
carload  shipments  be  at  the  minimum,  but  large  enough  to  cover  extra  cost 


8o  The  Plain  Facts  as  to  tJic  Trusts. 

roads,  with  governmental  power  (unlimited  except  by 
nature)  to  tax,  fix  charges,  and  otherwise  regulate,  we 
not  only  have  none  of  the  serious  disadvantages  of  gov- 
ernment ownership,  but  all  its  benefits  seem  within  reach 
if  a  determined  effort  is  made  to  possess  them.  It  is 
doubtless  true  that  often  the  officials  appointed  to  regu- 
late railroads,  and  other  natural  monopolies,  have  them- 
selves been  regulated  by  the  corporations.  But  they 
succeed  where  they  are  the  right  men,  under  the  right 
laws,  and  attempt  to  do  only  what  clearly  can  and  ought 
to  be  done.  If  with  the  few  laws  and  the  few  officials 
necessary  to  control  the  roads,  the  government,  state  and 
national,  has  not  obtained  results  wholly  satisfactory, 
would  it  be  more  likely  to  do  so  by  a  change  to  owner- 
ship, with  a  few  more  hundreds  of  thousands  of  men  to 
hire,  and  billions  of  dollars  to  spend  ? 

Could  the  State  Control  Better  as  the  Owner  ? — Could 
we  expect  soon  a  time  in  this  country  when  wealthy  ship- 
pers of  freight,  and  sellers  of  railroad  supplies,  would  not 
be  able  to  further  their  own  private  interests  by  influenc- 
ing the  government  or  its  officials  ?  And  would  it  be 
possible  to  confine  new  lines  of  road  to  localities  afford- 
ing paying  business,  without  regard  to  local  party  pres- 
sure, or  to  prevent  discriminating  freight  classification  in 
favor  of  districts  having  political  power  ?  There  might 
not  be  better  opportunity  to  control  effectually  under 
government  ownership  than  at  present.  There  is  now 
no  lack  of  power  to  do  so,  while  the  risk  of  fixed  capital, 
the  hiring  of  men,  and  the  spending  of  money,  all  rest 
upon  the  private  owners. 

of  handling  the  smaller,  and  thus  to  prevent  also  needless  multiplication  of 
dealers,  at  a  waste  of  society's  capital  and  business  energy.  Albert  Fink 
testified  that  cost  per  car  to  the  road  was  as  low  with  one  carload  as 
with  ten. 


TJie  Railroad  Problem.  8 1 

Is  There  a  Conflict  of  Interests  ? — There  seems  to  be 
no  conflict  between  the  interests  of  the  public  and  those 
of  railroad  owners  when  permanent  results  are  considered. 
The  people,  in  a  far-sighted  view,  want  to  pay  railroads 
well,  and  to  get  the  best  service  that  can  be  devised. 
For  improvements  adopted  they  will  allow  substantial 
reward  in  high  profits,  for  some  time,  before  taking  all 
the  benefit  to  themselves  in  lower  rates.  Railroad  owners, 
on  the  other  hand,  know  that  injury  inflicted  by  them  on 
patrons,  whatever  the  immediate  gains,  will  sooner  or 
later  come  back  with  added  force  on  the  company  itself, 
reducing  patronage  and  forfeiting  public  favor.  More 
than  a  reasonable  profit  they  cannot  long  take  without 
bringing  on  their  road  eventually  a  compensatory  loss. 
Since  speculative  building  has  passed,  and  railroad  stocks 
have  been  brought  down  to  a  solid  value  based  on  rea- 
sonable earnings,  it  seems  not  too  much  to  hope  that  the 
problem  will  largely  disappear,  in  frank  recognition,  both 
by  managers  and  by  legislators,  of  inevitable  principles 
working  for  the  good  of  all  concerned. 

State  Ownership  Works  "Well  in  Europe. — In  a  European 
monarchy,  where  military  disciphne  prevails,  with  the 
best  men  permanently  settled  in  the  public  service,  the 
government  can  carry  on  a  business  economically  and 
well,  though  not  progressively  as  a  rule.^  But  with  our 
changing  civil  service,  and  our  easy  system  of  influencing 
those  in  authority,  "  political  reasons  compel  us  to  re- 
duce government  ownership  of  fixed  capital  to  a  mini- 
mum." The  Italian  government,  about  1880,  decided 
not  to  engage  in  the  railroad  business,  and  released  its 

•  With  such  a  corps  of  officials,  government  control  of  private  owners 
would  also  be  far  more  successful.  Having  the  best  men  in  office  is  a 
great  advantage  under  any  system. 

6 


82  The  Plain  Facts  as  to  the  Trusts. 

lines,  "  largely  on  the  ground  that  politics  would  corrupt 
the  railroad  management,  and  that  the  railroad  manage- 
ment would  corrupt  politics."^ 

Little  Desire  for  State  Ownership. — Except  among 
people  of  socialistic  ideas,  who  include  a  considerable 
number  of  wage  workers,  there  has  not  been  much  seri- 
ous thought  in  America  of  government  ownership  of 
railroads.  The  subject  is  considered  here  because  it  is  an 
important  part  of  the  trust  problem.  The  same  is  true 
of  England  and  Canada.  The  movement  in  Canada  for 
government  ownership  of  all  railroads,  agitated  a  year 
ago  by  the  Toronto  World,  is  not  likely  to  reach  sub- 
stantial results.  Manitoba  bought  a  short  railroad  in 
1 90 1,  and  leased  it  with  conditions  as  to  low  freight 
rates. 

We  Can  Get  Railroads  Without  It. — It  would  no  doubt 
be  wise  for  our  government  to  build  and  operate  a 
needed  line  here  and  there  if  like  the  Russians  we  could 
not  get  it  in  any  other  way,^  or  if  like  the  Germans  we 

^  Hadley,  403.  Professor  E.  R.  A.  Seligman  wrote  in  P.  S.  Quarterly, 
1892,  p.  165,  that  this  Italian  commission  was  packed,  and  that  what  its 
conclusion  would  be  was  known  at  first. 

*  State  Enterprises  Eighty  Years  Ago. — This  was  the  sufficient  reason 
for  the  many  internal  improvements  undertaken  by  the  state  governments 
between  1815  and  1850.  Means  of  transportation  were  then  necessary  for 
developing  a  vast  interior,  inland  from  rivers,  and  as  capitalists  were  not 
ready  to  do  the  work  it  was  taken  up  by  the  states.  Congress  built  the 
National  Pike,  from  Washington  to  Columbus  and  Vandalia,  starting  in 
1806.  Many  of  the  state  enterprises  were  unsuccessful,  coming  before 
they  were  needed,  and  piling  up  heavy  debts.  The  state  debt  of  Virginia, 
whose  readjustment  was  the  dividing  line  between  parties  in  the  election  of 
1881,  was  contracted  in  part  during  the  canal  making  period.  New  York 
state's  Erie  Canal,  opened  in  1825,  was  a  great  success,  supplying  the 
needed  link  in  a  chain  of  water  transportation  from  the  West  to  the  sea- 
board. It  has  been  largely  used  in  late  years  by  boat  operators  paying 
tolls  (up  to  1882 — free  since  then);  and  it  has  a  beneficial  effect  toward 
reducing  the  freight  rates  of  railroads, 


The  Railroad  Problem.  83 

had  done  all  else  a  government  could  do,  and  did  not 
care  how  far  the  state  interfered  in  the  life  of  the 
people.     But  we  could  not  get  better  railroad  service,  nor 

Canals  and  Railroads. — The  other  canals  of  the  country  have  not 
been  extensively  used  since  railroads  became  numerous.  Some  of  the 
canals  were  abandoned  long  ago.  Detailed  information  regarding  thirty- 
eight  canals  still  in  use  in  this  country  is  given  in  the  World  Almanac 
for  1902.  Unless  a  canal  is  suitable  for  vessels  of  considerable  capacity, 
its  transportation  is  now  too  slow.  After  i860  the  Erie  Canal  gave  way 
to  the  railroads.  The  state  of  Ohio's  Miami  and  Erie  Canal,  between 
Toledo  and  Cincinnati,  was  leased  by  the  legislature  in  1901  to  a  com- 
pany that  will  tow  boats  with  electric  cars  running  on  the  bank.  There  is 
greater  reason  for  state  ownership  of  canals  than  of  railroads.  For  canals 
there  are  fewer  routes,  and  they  can  be  used  by  different  boat  owners  pay- 
ing toll,  while  a  state  railroad  must  be  used  by  one  operator  only,  the  state 
itself,  as  in  Europe,  or  by  a  leasing  company,  as  with  the  Queen  and  Cres- 
cent line,  owned  by  the  city  of  Cincinnati.  The  state  of  North  Carolina 
owns  now  ;?3,ooo,ooo  of  stock  in  the  North  Carolina  Railway,  leased  to 
the  Southern.  President  Spencer,  of  the  Southern,  testified  before  the  In- 
dustrial Commission  (Vol.  IV.  128)  that  North  Carolina's  operation  of 
her  road  was  unsuccessful,  and  that  the  Cincinnati  road  had  not  earned 
interest  for  twenty- three  years,  and  was  leased  for  $400,000  less  than  its 
annual  interest.  Many  cities  and  counties  invested  in  stock  to  secure  new 
railroads,  up  to  about  twenty  years  ago. 

Grants  of  Land  and  Money.  —Unwillingness  of  capitalists  to  build 
unaided,  was  the  reason  for  the  nation's  gifts  of  land  and  loans  of  money, 
between  1859  and  1870,  to  the  Union  Pacific  and  Central  Pacific  com- 
panies. Besides  opening  new  territory,  these  roads  were  needed  for  polit- 
ical and  military  reasons,  to  bind  the  nation  together.  To  encourage  the 
construction  of  railroads  into  unsettled  areas,  the  United  States  has  granted 
free  many  millions  of  acres.  To  the  various  Pacific  roads  150,000,000 
acres  were  given.  For  this  purpose  the  Canadian  government  '<  has  con- 
tributed $88,858,000  in  cash  and  granted  39,725,000  acres  of  land.  The 
various  provinces  and  municipalities  also  have  granted  vast  sums  of  money 
and  vast  areas  of  land,  swelling  the  estimated  total  to  $223,000,000  in  cash 
bonuses,  and  $180,000,000  in  lands,  or  a  total  of  $403,000,000  contributed 
to  assist  railroad  building  in  Canada.  The  greater  part  of  this  sum  has 
gone  to  railways  owned  by  private  corporations,  but  government  ownership 
is  represented  by  more  than  $60,000,000  expended  upon  the  Intercolonial 
Railway,  extending  to  New  Brunswick  and  Nova  Scotia."  Leasing  of 
this  road,  now  operated  by  the  government,  to  the  Canadian  Pacific,  has 
recently  been  considered. 


84  TJie  Plain  Facts  as  to  the  Trusts. 

cheaper.  We  might  get  worse  and  more  expensive. 
To  any  important  extent,  added  power  to  regulate  with- 
out loss  might  not  come  with  the  change.  On  business 
principles  we  could  not  treat  employees  better  than  do 
the  leading  railroad  systems,  nor  get  so  much  for  money 
spent,  either  in  wages  or  for  supplies.  In  no  certain 
way  could  the  public  be  benefited,  except  in  uniformity 
of  rates  otherwise  to  be  secured  ;  but  by  the  stupendous 
load  of  taking  many  railroads,  the  people  and  their  gov- 
ernment would  very  likely  be  harmed.  Though  raising 
money  to  buy  railroads,  with  their  earnings  available  to 
pay  bonds,  might  not  be  a  difficult  task,  and  though 
necessity  might  force  us  to  provide  in  time  a  civil  service 
permanent  and  reasonably  efficient,  yet,  for  no  solid  rea- 
son, to  cover  the  people  everywhere  with  governmental 
power  and  activity  in  railroad  service  (our  greatest  indus- 
try) could  hardly  fail  to  cause  grave  national  injuiy,  by 
weakening  our  universally  admired  self-reliance,  individ- 
ual enterprise,  and  spirit  of  freedom.^ 

'  State  Ownership  Prevails  in  Most  Countries.— Railroads  owned  or 
continually  aided  by  government  are  the  rule  practically  everywhere  except 
in  the  United  States,  Great  Britain,  and  Canada.  The  main  reasons  for 
state  ownership  have  been  military  needs  and  lack  of  private  enterprise. 
On  the  vast  arid  plain  of  Australia,  government  alone  is  able  to  overcome 
the  obstacles  of  nature.  Fortunately,  these  reasons  have  not  usually  existed 
in  the  three  countries  named  above.  In  India,  government  railroads  are 
built  with  a  view  of  distributing  grain  in  time  of  famine.  The  fourth-class 
passenger  rate  there,  about  a  half-cent  per  mile,  is  high  for  the  people's 
incomes.     Farm  wages  range  from  10  to  20  cents  a  day. 

Reasons  Against  Government  Ownership  of  Railroads  in  America 
were  given  as  follows  in  1899  in  testimony  before  the  Industrial  Commis- 
sion :  I.  Greatest  possible  investment  of  capital  is  involved,  with  complex 
and  changing  system  of  management.  2.  Income  from  all  roads  would  be 
two  or  three  times  all  other  national  revenue,  throwing  the  government  out 
of  balance,  and  making  transportation  its  main  function.  3.  Highest  skill 
in  management  is  required,  for  which  a  democracy  will  not  pay  adequate 
salaries.     For  this  reason  the  government,  whose  highest  officials,  except 


The  Railroad  Problem.  85 

GOVERNMENT  TELEGRAPHS,  TELEPHONES,  AND  EXPRESS. 

With  Telegrapli  Lines  government  ownership  and 
operation  would  be  a  different  matter.  In  amount 
of  capital  involved,  number  of  employees,  complexity 
of  management,  and  public  importance,  the  telegraph 
business  is  small  compared  with  the  railroads.  It  could 
undoubtedly  be  added  to  the  post-office  department, 
as  in  Great  Britain  and  other  countries,  and  carried  on 
very  satisfactorily. 

Is  There  Reason  for  a  Change  of  Ownership  ? — An  elab- 
orate argument  for  government  ownership  of  telegraphs 
was  made  in  1901  before  the  Industrial  Commission  by 
Professor  Frank  Parsons,  of  Boston,  President  of  the 
National  Public  Ownership  League.  Some  of  his  ideas 
are  too  socialistic  to  meet  with  general  approval ;  but  im- 
mediate or  early  purchase  of  the  telegraph  lines  by  the 
government  is  also  advocated  by  conservative  economists, 
especially  by  Professor  Edwin  R.  A.  Seligman,  of  Co- 
lumbia University,  who  is  perhaps  the  leading  authority 
on  taxation  and  government  functions.^ 

the  President,  get  salaries  of  from  $5»ooo  to  ;^  10,000,  could  not  compete  in 
progress  with  private  companies  paying  jlio.ooo  to  $50,000.  5.  The 
motive  of  private  gain  is  essential  to  highest  success,  especially  in  the  com- 
plicated business  of  transportation.  Government  business  costs  much  more 
than  private.  6.  The  one  million  employees  would  give  the  controlling 
power  a  dangerous  political  influence.  7.  Theoretically,  full  consolidation 
would  save  all  the  wastes  of  competition,  but  such  a  monopoly  of  railroads 
could  not  be  trusted  to  private  hands,  and  fully  a  generation  would  be 
required  to  develop  competent  public  management.  We  must  try  now  to 
perfect  regulation  ;  ownership  may  be  possible  in  the  future.  The  one  or 
two  ardent  advocates  of  ownership  said  that  the  change  cannot  come  until 
the  civil  service  has  been  reformed,  and  the  people  educated  to  require  the 
best  in  government. 

1  The  testimony  as  to  public  ownership  is  contained  in  Vols.  IV.  and  IX. 
of  the  Commission's  report.  See  also  Professor  Parson's  article  in  The 
Arena,  Feb.  1902. 


86  Tlie  Plain  Facts  as  to  the  Trusts. 

Lower  Charges  in  Europe. — President  Hadley  in  1885, 
in  his  book  on  railroads,  page  256,  wrote  that,  consider- 
ing distances,  the  average  charges  for  telegrams  in  Amer- 
ica were  probably  much  lower  than  in  Europe,  especially 
on  the  Continent ;  and  that  in  efficiency  we  probably  had 
a  slight  advantage — a  distinct  one  in  utilization  of  new 
methods.  Professor  Von  Halle,  of  Berlin,  seemed  to 
have  similar  ideas  in  1895,  as  indicated  in  his  book  on 
trusts.  But  the  evidence  submitted  to  the  Industrial 
Commission  seemed  to  be  decidedly  to  the  contrary.  In 
all  parts  of  Europe  government  ownership  of  telegraphs 
prevails.  The  minimum  rates  in  America  (except  between 
New  York  and  Philadelphia,  20c.)  is  25  c,  for  a  10- word 
message  over  much  used  lines  up  to  about  300  miles. 
The  rate  from  Jackson  to  St,  Louis,  500  miles,  is  30c. ; 
to  New  York,  775  miles,  50c,;  highest  rate,  ;^i  to  San 
Francisco,  2500  miles.  The  average  charge  for  all 
Western  Union  telegrams  in  1900  was  30  3^c.  each  ;  cost 
to  the  company,  25  ^c,  European  rates  are  as  follows, 
regardless  of  distance  in  home  territory :  In  Great 
Britain,  12  words  for  12c.;  in  France,  10  words  for  lOc; 
in  Germany,  10  words  for  12c.;  in  Belgium,  15  words 
for  IOC  The  address  and  signature,  given  free  in 
America,  are  charged  for  in  Europe,  reducing  a  12-word 
message  to  7  or  8  words.  The  charge  for  additional 
words  is  lower  in  Europe,  giving  both  in  Great  Britain 
and  France  an  average  of  1 5  ^c.  each  for  all  telegrams 
sent — about  half  the  average  charge  in  America, 

Could  American  Charges  be  Reduced  ? — A  manager  of 
the  Baltimore  and  Ohio  Railroad's  telegraph  system, 
which  was  sold  to  the  Western  Union  in  1887,  when  the 
railroad  company  was  in  financial  straits,  was  quoted  to 
show  that  his  company  earned  a  profit  with  a  rate  of 


The  Railroad  Problem.  87 

only  15c,  between  New  York  and  Chicago,  and  of 
15c.  for  each  of  19  long  distances,  with  an  average  rate 
of  only  16  ^c.  on  all  messages  sent,  A  number  of 
boards  of  trade,  and  of  postmasters-general,  especially 
Mr.  Wanamaker  in  1890,  have  urged  government  pur- 
chase of  the  telegraph  lines.  He  thought  that  in  con- 
nection with  the  post-office  department  a  rate  of  loc.  for 
10  words,  regardless  of  distance,  might  pay  expenses. 
It  is  doubtless  true  that  the  market  value  and  dividends 
of  Western  Union  stock  are  based  to  a  large  extent  on 
that  company's  monopoly,  and  that  by  adding  future 
extensions  to  capital  at  their  actual  cost,  a  paying  rate 
to  the  government  would  be  much  lower  than  those 
now  charged. 

Difficulties  of  a  Government  Telegraph  System  in 
America. — The  British  telegraph  system,  confined  to  a 
small  and  thickly  settled  country,  was  operated  in  1900 
at  a  loss  of  over  ;^3,ooo,ooo,  and  the  total  loss  since 
1870,  when  the  government  took  the  lines,  has  been 
about  1^40,000,000,  But  the  reason  given,  namely,  that 
the  people  are  more  eager  for  extension  of  lines  than  the 
revenue  warrants,  explains  the  loss.  It  does  not  arise 
from  excess  of  operating  expenses,  but  from  investment 
of  income  on  additions  to  plant.  So  far  as  this  is  true, 
there  is  no  loss  at  all.  Professor  Parsons  says  the  British 
deficit  would  be  small  if  improvements  to  plant  were 
made  with  new  capital  added.  But  as  to  extension  of 
lines,  how  would  the  case  be  in  the  vast  sparsely  settled 
areas  of  America,  with  the  local  political  influence  usually 
exerted  on  the  government  ?  It  is  doubtful  if  experience 
with  telegraph  service  would  differ  greatly  in  this  respect 
from  mail  service,  with  which  there  is  practically  no 
trouble  from  local  demands.      Country  people   having 


88  Tlic  Plain  Facts  as  to  the  Trusts. 

mails  only  two  or  three  times  a  week  are  content,  never 
having  known  better  facilities.  Growing  towns  deserve 
the  postal  improvements  given  them,  which  are  usually 
based  on  the  amount  of  postal  business.  Mail  service  of 
some  kind  is  so  necessaiy  for  public  enlightenment  that  the 
government  must  often  supply  it  at  a  loss.  As  tele- 
graph service  is  not  similarly  necessary  —  is  perhaps 
not  even  desired  by  people  unwilling  to  pay  for  it — 
there  would  probably  be  little  demand  for  telegraph 
offices  or  extensions  not  likely  to  receive  a  self-support- 
ing income. 

Success  Would  "be  Certain. — It  is  true  that  the  success 
of  the  postal  department  is  due  largely  to  its  use  of 
capital  in  railroads,  whose  private  owners  bear  the  risk 
and  develop  the  improvements.  But  in  the  people's 
willingness  to  pay  in  full  for  telegrams,  interest  on  capi- 
tal, and  allowance  for  depreciation  of  plant,  could  be 
included  in  charges,  which  then  would  doubtless  seem 
low.  As  the  cost  of  all  the  telegraph  lines  would  prob- 
ably fall  considerably  below  ;^  150,000,000,  at  the  high- 
est monopoly  value  of  shares,  and  as  the  employees 
number  only  45,000,  about  a  quarter  of  those  in  the 
postal  service,  government  ownership  would  seem  to  be 
a  safe  undertaking. 

Benefit  to  Society  from  Government  Telegraphs. — A 
uniform  rate  of  about  a  cent  and  a  half  each  for  first  ten 
words,  regardless  of  distance,  or  even  if  confined  to  a 
portion  of  the  country,  would  greatly  increase  the  use 
of  the  telegraph,  promoting  business,  saving  time,  and 
adding  to  public  welfare.  The  British  per  capita  use 
of  the  telegraph  is  nearly  double  that  of  the  Americans, 
despite  the  larger  incomes  of  the  latter.  Difference  in 
rates  must  be  the  reason. 


TJie  Railroad  Problem.  89 

National  Ownership  of  Telephones  also,  with  local  ex- 
changes in  charge  of  postmasters,  is  favored  by  Professor 
Seligman,  Use  of  the  telephone,  especially  in  large 
cities,  is  now  restricted  by  high  charges.  Very  likely, 
both  the  telegraph  and  the  telephone  monopolies  in 
America  will  pass  before  long  under  government  owner- 
ship. The  reasons  for  the  change  seem  so  conclusive, 
and  the  transfer  would  be  so  easy,  that  a  general  attempt 
at  public  regulation  of  charges  would  scarcely  be  worthy 
of  serious  consideration.  France  took  possession  of 
her  telephone  system  in  1899.  Great  Britain  also  has 
just  begun  to  take  possession  of  hers.  The  Canadian 
government  recently  made  an  inquiry  into  the  feasibility 
of  public  ownership  of  telegraphs,  but  the  result  did  not 
encourage  embarking  in  the  enterprise. 

The  Parcels  Post  and  Postal  Savings  Bank. — The  Brit- 
ish system  of  postal  savings  banks,  and  of  sending  ex- 
press packages  at  low  rates  by  mail,  would  no  doubt 
be  very  useful  to  the  people  of  country  districts  in 
America,  Perhaps  these  two  small  lines  of  service 
might  well  be  added  to  the  post-office  department.  Both 
have  lately  been  urged,  and  both  will  probably  be 
adopted  soon.  Opposition  from  banks,  express  com- 
panies, and  country  merchants  fearing  loss  of  trade  from 
mail  orders  sent  away,  would  be  similar  to  opposition 
that  has  always  been  incurred  by  improvements.  In 
fact  a  parcels  post  is  already  in  operation  between  the 
United  States  and  Germany,  Newfoundland,  Hawaii,  and 
Central  and  South  America.  The  limit  of  weight  is  1 1 
pounds,  and  the  postage  1 2  cents  a  pound. 

Rural  Free  Delivery  of  Mail,  established  long  ago  in 
densely  populated  England,  is  now  being  gradually  in- 
troduced into  America,  somewhat  rapidly  during  the  last 


90  The  Plain  Facts  as  to  the  Trusts. 

two  years,  and  with  decided  success,  increasing  the  postal 
business,  and  lowering  cost  of  postal  service  in  some 
cases  by  discontinuance  of  country  post-offices  no  longer 
needed.  It  is  hoped  that  this  mail  service,  soon  per- 
haps to  reach  all  rural  population  that  is  not  too  sparse, 
together  with  the  electric  car  lines,  will  lead  more  people 
to  live  in  the  wholesome  atmosphere  of  the  country. 


CHAPTER  V. 

MUNICIPAL    MONOPOLIES. 

Unlike  Railroads,  the  tendency  with  local  monopolies 
is  clearly  toward  public  ownership.  For  the  same  rea- 
sons that  a  city  must  own  its  water  works  and  bridges, 
essential  every  moment  to  its  life  and  business,  it  is  com- 
ing to  be  felt  that  it  must  also  own  its  car  lines.  Espe- 
cially is  this  true  with  systems  of  vast  importance  and 
costliness.  The  great  underground  rapid  transit  system 
begun  in  New  York  is  to  be  built  and  controlled  with 
some  of  the  ripened  wisdom  of  experience.  Its  cost  will 
be  about  ^35,000,000  and  its  length  2 1  miles.  The  com- 
pany building  it,  at  a  contract  price  paid  by  the  city  with 
its  bonds,  is  to  operate  it  for  fifty  years,  and  pay  back  to 
the  city,  as  rental,  the  interest  on  those  bonds,  and  also 
one  per  cent  more,  to  form  a  sinking  fund  for  paying  the 
bonds  at  the  end  of  the  fifty  years.  The  road  then  be- 
comes the  city's  property,  unencumbered  (though  the 
company  has  a  right  to  renew  the  contract  for  twenty- 
five  years  more).  New  York  city  owns  some  of  her 
docks,  renting  them  for  a  good  return  on  the  capital ; 
and  some  far-seeing  men  think  she  should  buy  all  her 
water  front,  to  give  best  possible  facilities  to  foreign  trade, 
which  in  late  years  has  been  drifting  from  her  to  Boston, 
and  to  ports  further  south. ^ 

Municipal  Operation  Not  Yet  Successful  in  America. — 
But  operation  by  the  city,  economical  and  efficient   in 

^Coler,  126,  170. 

91 


92  The  Plain  Facts  as  to  the  Trusts. 

Europe,  will  seldom  be  wise  in  this  country  until  poli- 
tics for  profit  have  become  less  common  —  until  the 
best  man  is  sought  for  a  city  position,  and  is  kept  in  it 
as  long  as  he  remains  the  best  man  for  the  place.  The 
lease  of  the  New  York  car  line  is  a  surer  method  than 
city  operation  for  obtaining  street  car  service  to  best 
advantage. 

Nor  Does  Municipal  Ownership  Yet  Seem  Wise  Ordi- 
narily. —  By  safeguarding  the  public  good  in  every 
possible  way  in  terminable  franchises,  granted  to  pri- 
vate companies  building  their  own  plants,  it  would 
seem  that  street  car,  gas,  and  electric  service  may  usu- 
ally be  obtained  with  best  results  for  the  present.  Such 
safeguarding  is  now  coming  to  be  the  prevailing  prac- 
tice. 

Long  Term  Franchises  given  by  a  city  to  corporations, 
without  full  return  to  the  public  in  a  percentage  of  in- 
come, in  rates  fixed  very  low,  or  in  a  purchase  price  or 
fixed  rental,  are  no  longer  freely  granted  as  they  were 
some  years  ago.  The  service  to  be  furnished  by  the 
companies  was  then  desired  and  not  possessed,  while  the 
large  future  value  of  the  franchises  was  not  adequately 
foreseen.  New  York's  new  charter  prohibits  franchises 
for  a  longer  term  than  twenty-five  years.  One  of  these 
rich  franchise  prizes,  worth  many  millions  to  the  company 
obtaining  it,  is  still  sought  sometimes  from  a  subservient 
or  purchasable  council,  and  the  measure  rushed  through 
before  the  people  learn  what  is  being  done.  The  state 
legislature  also  is  occasionally  involved,  and  like  the  city 
council  is  subjected  to  strong  temptation  by  wealthy 
schemers  after  franchises.  Both  the  governor  and  the 
mayor  may  then  become  tools  of  corruption  by  not 
using    their   veto  power.     The   purest-minded   country 


Municipal  Monopolies.  93 

legislators  then  become   such  tools  by  obeying  party 
bosses.^ 

^  A  Notorious  Franchise  Case. — The  most  noted  case  of  this  kind,  for 
all  future  time  it  is  to  be  hoped,  was  that  of  fourteen  street  railway  fran- 
chises given  away  free  by  Philadelphia,  in  June,  1901,  to  associates  of 
Senator  Quay,  without  requiring  cheaper  fares.  Mayor  Ashbridge,  ignor- 
ing protests  of  press  and  people,  signed  the  franchise  ordinances  at  mid- 
night. They  were  rushed  through  the  council  the  next  week  after  they  had 
been  authorized  by  the  legislature.  To  stop  the  robbery  from  being  carried 
through,  John  Wanamaker  offered  the  city  for  the  franchises  $2,500,000 
in  cash,  depositing  10  per  cent  of  it  as  earnest  money,  and  offering  three- 
cent  fares  during  workingmen's  hours.  The  mayor  contrived  to  avoid 
receiving  the  Wanamaker  offer  until  after  he  had  signed  the  ordinances. 
Mr.  Wanamaker  afterward  renewed  his  offer,  and  even  tendered  $500,000 
bonus  to  the  men  who  had  obtained  the  franchises  for  a  release  of  them.  The 
city  government  had  acted  so  scandalously  that  its  attempt  a  few  days  later  to 
float  $9,000,000  of  bonds  brought  only  one  subscription  of  $5,000.  ( Public 
Opinion,  June  issues,  1 901.) 

Comments. — "  No  American  state  or  city  ever  suffered  such  open  and 
barefaced  robbery.  It  shows  that  popular  government  has  ceased  to  exist 
in  Philadelphia  or  Pennsylvania. ' '  ( New  York  Post. )  "The  worst  mayor 
Chicago  ever  had  would  not  have  dared  to  throw  into  the  street  such  an 
offer  as  John  Wanamaker  made."  (Carter  Harrison.)  The  Philadelphia 
Inquirer,  the  reputed  organ  of  Senator  Quay,  seems  to  have  been  alone  in 
defending  the  action  taken.  The  leading  Republican  paper  of  Philadelphia 
estimated  that  $1,000,000  of  corruption  money  had  been  spent  in  the  legis- 
lature during  its  last  session.  This  paper  has  since  claimed  to  have  con- 
vincing evidence  that  one  of  the  state  supreme  judges  prostituted  his  high 
office,  by  influencing  the  other  judges  for  the  franchise  grabbers,  and  under 
their  direction  as  if  he  were  their  attorney.  Philadelphia  seemed  as  help- 
less as  New  York  was  thirty  years  ago  imder  the  infamous  Boss  Tweed. 

Not  So  in  Boston. — Governor  Crane  of  Massachusetts,  not  long  before 
the  Philadelphia  scandal,  vetoed  a  bill  granting  a  forty-year  franchise  mo- 
nopoly in  Boston.  He  said  :  "  No  reason  affecting  the  public  welfare  re- 
quires the  adoption  of  this  extraordinary  proposition.  .  .  .  Surrender  of 
public  rights,  even  for  brief  terms  of  years,  should  be  permitted  only  for 
controlling  reasons  of  public  policy." 

Another  Noted  Attempt  to  get  a  franchise  corruptly  was  that  of  the 
Ramapo  Water  Company  in  1899,  with  a  forty-year  contract  to  furnish 
water  to  the  city  of  New  York,  for  a  total  of  about  $200,000,000,  (Coler, 
138.)  Another  was  that  in  Detroit  several  years  ago  of  inducing  the  city 
to  buy  out  the  street  car  company  at  a  price  considered  double  what  the 


94  The  Plain  Facts  as  to  the  Trusts. 

The  Referendum. — An  effectual  safeguard  against  fran- 
chise corruption  is  the  referendum,  required  in  some  cases 
in  cities  by  the  new  constitution  of  CaHfornia,  and  required 
in  other  states  occasionally  by  legislative  acts  concern- 
ing cities.  This  is  a  vote  by  the  people,  to  confirm  or 
reject  the  city  council's  grant  of  a  franchise.  The  referen- 
dum is  useful  for  other  purposes.  At  a  regular  election 
in  1 90 1  in  Jackson  the  question  of  which  of  two  sites  to 
select  for  a  park  was  also  decided  by  vote ;  as  was  the 
selection  later  of  a  site  for  a  Carnegie  library.  Voting  to 
authorize  a  city  council  to  borrow  money  has  long  been 
common  ;  also  voting  by  a  state  to  ratify  a  constitutional 
amendment  proposed  by  the  legislature.  Extended 
application  of  the  referendum,  now  in  progress,  will  pro- 
property  was  worth.  The  scheme  here,  not  nearly  so  corrupt  as  the  others, 
was  stopped  by  a  court  decision  against  the  power  of  the  city  to  own  rail- 
ways under  the  state  constitution. 

The  Many  "  Ripper  Bills  "  passed  by  legislatures  in  1901  were  small 
schemes  to  benefit  party  men  in  cities  by  so  changing  the  city  charter  as  to 
give  more  power  to  a  partisan  council,  as  to  lengthen  the  terms  of  partisans 
in  office,  or  as  to  make  offices  appointive  by  a  partisan  mayor  instead  of 
elective  by  the  people. 

So  Long  as  Voters  Stay  with  Their  Party  without  regard  to  what  it 
does,  the  public  good  may  often  be  trampled  upon  for  the  advancement  of 
politicians.  Bosses  like  Senators  Piatt  and  Quay,  and  Richard  Croker, 
rule  legislatures  and  councils  as  they  please,  because  the  votes  they  control 
among  purchasable  people  are  added  to  by  better  people  who  will  not  vote 
against  their  party  for  any  amount  of  corruption.  These  belter  people  who 
thus  join  with  the  bad  are  the  cause  of  the  trouble.  Abuses  will  continue 
until  they  stop  them  by  voting  for  better  men  and  better  measures. 

The  Evil  of  Neglecting  to  Vote. — And  still  more  to  blame  are  the 
many  citizens  who  enjoy  the  benefits  of  government  and  do  not  even  take 
the  trouble  to  exercise  the  priceless  privilege  of  voting.  It  would  be  strange 
if  such  neglect  of  duty  did  not  bring  serious  evils.  Belgium  has  bad  com- 
pulsory voting  since  1893,  along  with  minority  representation,  and  with 
plural  voting  for  men  of  property.  By  means  of  a  great  mass  meeting  in 
Philadelphia  after  the  franchise  steal,  a  movement  was  started  to  rouse  the 
public  conscience  to  the  gravity  of  the  duty  of  voting. 


Municipal  Monopolies.  95 

tect  the  people  from  hasty  or  dishonest  action  by  their 
representatives,  whose  failure  to  do  their  whole  duty 
toward  the  whole  people  is  the  cause  of  many  of  our 
public  ills.  The  initiative,  which  like  the  referendum  has 
long  been  common  in  Switzerland,  is  a  vote  by  the  people, 
not  to  ratify  a  measure  already  passed  by  the  legislature, 
but  to  require  the  legislature  to  take  up  a  new  measure 
proposed.  Both  the  initiative  and  the  referendum  would 
likely  result  in  public  expense  for  voting  too  inconsistent 
and  unreflected  to  make  their  general  use  wise.  The 
probable  futility  of  large  use  of  the  referendum  is  shown 
by  voters'  indifference  to  constitutional  amendments, 
which  are  often  adopted  by  the  vote  of  a  small  fraction  of 
the  people.  However,  these  things  are  nothing  against 
the  value  of  a  right  to  use  the  referendum  when  needed. 
The  fact  that  it  could  be  resorted  to  would  check  corrupt 
use  of  money  to  influence  legislation. 

Proportional  Representation,  not  yet  introduced  in  this 
country,  would  be  perhaps  the  most  effectual  means  for 
reforming  city  councils  and  legislatures.  It  would  be  an 
arrangement  by  which  a  minority  party  having  half  as 
many  votes  as  the  majority  could  elect  half  as  many  rep- 
resentatives. At  present,  representation  from  a  ward  or 
voting  district  is  confined  to  the  majority  party  alone. 
The  books  and  articles  by  Professor  John  R.  Commons 
are  authority  on  proportional  representation. 

Nomination  of  Candidates  by  Direct  Vote  in  a  primary 
election,  instead  of  by  a  convention  of  delegates  selected 
in  ward  or  precinct  caucuses,  is  now  becoming  a  popular 
method  of  reform.  Except  where  the  two  parties  are 
nearly  equal,  the  final  election  is  less  important  than  the 
nomination.  Primary  elections,  open  to  every  voter  of 
the  party  at  the  precinct,  the  candidate  receiving  most 


96  TJie  Plain  Facts  as  to  the  Trusts. 

votes  being  the  nominee  for  final  election,  have  been 
adopted  by  law  in  South  Carolina  and  Georgia  for  all 
state  offices,  and  for  many  years  in  Virginia  have  occa- 
sionally been  used  by  option  of  the  local  party  commit- 
tee. Minnesota,  Michigan,  and  Indiana  have  each  tried 
this  plan  lately  with  success  in  certain  cities.  It  is 
expected  soon  to  spread  rapidly,  as  Australian  secret 
balloting  spread  ten  years  ago.  In  a  primary,  conducted 
according  to  law  as  a  regular  election,  each  vote  directly 
affects  the  final  nomination,  and  men  not  in  the  ring  of 
the  boss  or  party  managers  feel  it  worth  while  to  attend. 
In  Minneapolis  last  year  more  votes  were  cast  in  the  pri- 
maries than  in  the  preceding  election  for  Governor,  and 
the  city,  it  is  said,  never  secured  a  better  selection  of 
officers.  In  Lincoln,  Neb.,  direct  primaries  are  said  to 
have  abolished  bossism,  and  to  have  put  the  parties  under 
control  of  the  best  men.  {National  Magazine,  March, 
1902.)  Yet  the  direct  primary  cannot  change  conditions 
in  a  ward  where  the  boss-ruled  class  are  the  majority.  ^ 

1  Encouraging  Progress  in  Municipal  Reform. — Despite  the  Phila- 
delphia case,  there  has  been  encouraging  progress  of  late  toward  securing 
for  the  public  an  adequate  return  for  the  value  of  franchises.  It  was  said 
a  few  months  ago  that  "a  Chicago  company  owning  210  miles  of  track 
offers  to  pave  every  street  it  occupies,  from  curb  to  curb,  with  best  material, 
if  the  city  will  renew  its  franchise,  which  expires  in  1904."  The  assess- 
ment of  a  Cleveland  street  railway,  with  a  salable  value  admitted  to  be 
over  ;^io,ooo,ooo,  was  raised  in  1 901  from  $600,000  to  1^7,100,000.  It 
had  been  assessed  on  physical  property  only,  such  as  cars  and  barns,  not 
on  franchise.  A  similar  change  in  a  Detroit  assessment  was  confirmed  by 
the  supreme  court. 

Taxing  Franchises. — The  Illinois  Supreme  Court  rendered  in  October, 
I901,  a  decision  by  which  it  is  said  a  total  of  over  ^100,000,000,  for 
franchise  values,  must  be  added  to  the  assessments  of  Chicago  corpora- 
tions. Mayor  Johnson  of  Cleveland  has  been  leading  a  movement  by 
which  it  is  expected  to  add  $200,000,000  to  the  assessed  valuation  of  Ohio 
steam  railroads.  Their  rate  of  assessment  is  apparently  proved  to  be  less 
than  half  that  of  general  property  ;  though  in  some  states  the  railroad  tax, 


Municipal  Monopolies.  97 

In  Reply  to  the  Public  Ownership  Argument,  that  the 
rich  corporations   regulate  their  regulators  on  the  city 

reaching  in  cases  12  per  cent  of  net  earnings,  may  have  been  so  high  at 
times  as  to  raise  freights,  and  thus  to  place  the  state  at  a  disadvantage. 
(Nevircomb,  145.)  New  York  state  has  a  new  law  for  taxing  franchises, 
for  whose  enforcement  gallant  efforts  have  been  made  by  Governor  Roose- 
velt and  the  tax  commissioners.  Though  franchises  give  value  to  street 
railways  in  the  same  way  that  location  gives  value  to  land,  they  have 
escaped  taxation  until  recently.  The  Industrial  Commission  recommends 
that  franchises  be  assessed  in  market  value  of  stock  and  bonds. 

Provision  for  Municipal  Ownership. — Mayor  Harrison  of  Chicago 
has  lately  been  resisting  vigorously  unseemly  haste  by  street  railway  cor- 
porations to  have  their  franchises  renewed  for  twenty  years,  before  the 
legislature  has  given  the  city  the  power  of  public  ownership,  for  which  he 
says  the  civil  service  may  be  ready  before  the  end  of  that  time.  His  elec- 
tion pledge  was  that  new  franchises  should  be  ratified  by  referendum,  and 
should  provide  for  municipal  ownership  in  the  end.  (  The  Outlook,  Jan. 
18,  1902.)  In  different  cities  the  tracks  will  fall  to  the  city  at  expiration 
of  present  franchises.  Provision  for  city  ownership  was  made  in  San 
Francisco's  charter  of  1899.  Virginia's  proposed  new  constitution  requires 
that  franchises  be  limited  to  thirty  years  and  sold  to  the  highest  bidder. 

Progress  in  Cleveland. — A  Cleveland  board  has  just  recommended 
acceptance  by  the  council  of  a  bid  (accompanied  by  ^50,000  earnest 
money)  for  franchises  on  17  railway  routes,  mostly  new,  60  miles  in  all. 
The  bidder  agrees  to  the  city's  conditions,  which  include  three-cent  fares, 
universal  transfers,  arbitration  of  labor  disputes,  requirement  of  best  appli- 
ances, limit  of  franchise  to  20  years,  half  of  profit  above  8  per  cent  after 
10  years  to  fall  to  the  city,  and  a  right  to  the  city  to  purchase  any  time,  at 
an  appraised  price,  without  paying  for  franchise.  Mayor  Johnson  was 
elected  on  a  platform  approving  three-cent  fares  and  no  extension  of  fran- 
chises.     {^World's  Work,  Feb.  I902.) 

Methods  of  getting  back  old  perpetual  franchises  are  discussed  by  John 
Ford  in  North  American  Review,  May,  1901.  The  right  of  eminent 
domain  is  available  in  such  cases.  A  perpetual  monopoly  given  Robert 
Fulton  to  navigate  the  Hudson  was  of  course  declared  unconstitutional. 
Such  binding  of  posterity  could  never  be  tolerated. 

Municipal  Good  Government  Will  Go  Forward  by  its  own  momentum 
when  it  has  become  strong  and  popular,  as  in  Europe,  whose  city  govern- 
ments have  for  many  years  been  improving  steadily,  attracting  into  office 
the  ablest  and  best  men.  Up  to  the  present,  in  America,  the  tendency  in 
cities  of  all  grades  has  been  to  follow  the  vicious  example  of  the  Tammany 
spoilsmen  in  New  York,  who  were  defeated  in  1901  by  the  reform  forces  in 

7 


98  The  Plain  Facts  as  to  the  Trusts. 

boards,  it  might  be  said  that  with  operation  by  the  city 
the  aldermen  and  special  commissioners  would  be  no  less 
influenced  by  ward  bosses  with  henchmen  to  provide  jobs 
for,  and  by  wealthy  bidders  for  contracts  to  furnish  equip- 
ment and  supplies.  There  is  temptation  under  both  sys- 
tems— public  operation,  or  private  operation  under  public 
control.  Under  either  there  will  be  a  field  for  bosses, 
wielding  power  by  control  of  votes.  No  system  of  own- 
ership or  government  will  relieve  the  people  from  the 
necessity  of  elevating  voters'  morals  above  the  practice 
of  receiving  bribes,  whether  in  money,  or  in  the  jobs  and 
favors  bestowed  by  a  boss  ;  nor  will  the  time  ever  come 
when  men  of  wealth  or  intelligence  can  safely  escape  the 
burden  of  taking  an  active  part  in  politics.  Control  of  a 
comparatively  small  number  of  voters  keeps  an  alderman 
in  office  under  the  system  of  election  by  a  single  ward, 
instead  of  by  the  city  at  large.  A  change  to  the  latter 
system  is  desired  in  many  places. 

The  Advantage  of  Private  Operation  is  that  the  city 
avoids  the  risks  of  investing  capital  and  carrying  on 
business,  while  by  means  of  carefully  prepared  franchises 
it  may  in  some  lines  of  service  control  almost  as  effect- 
ually as  if  it  were  the  operator.  Some  investigators 
who  would  favor  public  ownership  if  street  car  service 
were  just  being  introduced,  favor  private  ownership  now, 
because  of  the  great  cost  of  buying  out  the  companies, 
and  of  probable  extravagance  in  operation  under  such  men 
as  now  hold  office.  The  public  of  a  city  can  own  and 
act  only  through  its  officials.  Because  these  have  been 
unfaithful  when  over  a  few  things,  it  is  deemed  unwise  to 

the  election  of  Seth  Low  as  mayor.  Pittsburgh  also,  in  February,  1902,  gave 
a  rebuke  to  ripperism,  and  placed  her  city  government  in  cleaner  hands. 
Chicago  voted  5  to  I,  April,  1902,  for  public  ownership  and  direct  primaries. 
Recent  exposure  of  wholesale  bribery  is  a  start  in  purifying  St.  Louis. 


Municipal  Monopolies,  99 

make  them  rulers  over  many  things.  If  they  now,  as  in 
the  Philadelphia  franchise  case,  receive  a  large  sum  for  a 
great  breach  of  trust,  would  they  not  then  receive  many 
smaller  sums  for  committing  many  smaller  breaches  of 
trust  ?^  They  would  have  no  franchise  to  sell,  under 
close  scrutiny  from  the  public,  but  they  would  continu- 
ally be  giving  out  contracts,  to  which  the  public  gave  no 
attention. 

That  the  Presence  of  Corporations  Causes  the  Corrup- 
tion is  the  claim  of  the  advocate  of  public  ownership — 
that  if  the  city  took  from  them  the  task  of  supplying  the 
service,  nine-tenths  of  the  corruption  would  disappear. 
No  doubt  they  are  the  chief  source  of  campaign  and  com- 
mittee funds  for  the  boss  and  his  machine.  But  it  seems 
too  much  to  hope  that  the  boss  could  be  eliminated  from 
local  politics  by  the  simple  change  to  public  ownership. 
Being  a  resourceful  man,  he  would  still  find  a  way  to 
gain  from  his  control  of  votes.  At  present  the  corporate 
forces  for  evil  are  strong,  but  they  are  few,  and  may 
be  known  and  watched.  Under  public  ownership  evil 
forces  would  be  less  powerful,  but  they  would  be  numer- 
ous, and  of  the  personal  kind  that  are  not  to  be  watched 
effectually  without  intolerable  espionage.  They  might 
appear  in  any  case  of  hiring  men  or  buying  supplies.  So 
long  as  men  of  influence  are  willing  to  resort  to  corruption 
for  the  sake  of  gain,  the  way  will  not  be  lacking. 

The  Only  Sure  Remedy,  it  seems,  is  so  to  enlighten  and 
purify  public  sentiment  that  men  willing  to  do  such  things 
will  not  have  influence  ;  that  each  citizen  will  rebuke  dis- 

^  New  York  Nation.  This  reasoning  is  unsound  if  it  is  true  that  public 
ownership  would  bring  better  men  into  office.  That  is  discussed  a  few 
paragraphs  further  on.  As  to  the  advantage  of  greater  publicity  of  ac- 
counts under  public  ownership,  this  does  not  purify  public  business  now, 
and  might  be  well  provided  for  in  the  terms  of  a  franchise. 


lOO  TJie  Plain  Facts  as  to  the  Trusts. 

honesty  toward  the  public,  as  he  rebukes  dishonesty  toward 
himself.  When  the  man  of  wealth  and  culture  lives 
nearer  to  the  masses  in  acquaintance  and  sympathy,  they 
will  discriminate  better  between  right  and  wrong,  and 
will  not  obediently  follow  the  boss  as  their  only  influen- 
tial friend.  They  will  discern  that  the  boss's  favors 
spring  not  from  generous  regard  for  the  poor,  but  are 
bribes  for  votes.  Until  the  mass  of  the  people  know  the 
right,  and  desire  to  do  it,  neither  public  ownership,  nor 
any  other  system,  will  rid  a  city  of  corruption. 

Are  Not  the  Real  Interests  Harmonious  ? — It  seems  that 
adding  to  public  functions  a  street  car  service,  with  its 
vast  business,  would  complicate  rather  than  simplify  local 
government,  and  render  its  proper  administration  more 
difficult.  Control  of  privately  owned  street  car  service 
appears  to  be  but  a  slight  and  natural  extension  of  the 
control  cities  have  long  exercised  over  various  occupa- 
tions closely  affecting  the  public.  As  the  permanent 
interests  of  private  owners  having  a  long  franchise,  and 
desiring  its  renewal,  are  in  harmony  with  those  of  the  public 
— what  is  best  for  the  people  being  eventually  best  for  the 
companies — the  proper  measure  of  control,  it  seems,  need 
not  weaken  the  effort  of  owners  to  care  for  their  business 
as  their  own,  nor  involve  necessarily  a  conflict  of  inter- 
ests. As  to  rates  of  street  car  fare,  private  capitalists  are 
usually  satisfied  with  as  low  a  return  on  their  investments 
as  should  be  earned  by  the  people's  capital  under  public 
ownership.  Though  some  profit  to  private  owners  is 
usually  sure  in  a  growing  city,  they  have  a  right  to  high 
profit  when  by  buying  a  franchise,  or  guaranteeing  cheap 
fares,  they  take  the  risk  of  getting  a  profit  too  low.  If 
the  city  took  all  the  risks,  the  company  would  accept 
very  low  profits,  as  in  lending  on  bonds. 


Municipal  Monopolies.  lOi 

Is  it  Public  Control  of  Private  Property  ? — It  is  hardly 
a  case  of  public  control  of  privare  property,  contrary  to 
the  owner's  usual  rights.  The  company  is  less'afi  owner 
than  a  contractor,  undertak-ng  fo  perf of <,h  *;• ''^ertaiji;  ser- 
vice during  the  life  of  the  franchise,  according  to  its 
specified  terms,  whose  fulfilment  the  other  party,  the 
city,  has  a  right  to  watch  continually.  The  value 
of  the  company's  property  in  surface  tracks  and  cars 
is  small  compared  with  the  value  of  the  right  to  use 
the  city's  streets.  Here  there  seems  to  be  no  more 
than  the  usual  antagonism  of  interests  to  be  found 
in  business  contracts.  Private  owners  cannot  feel  that 
the  control  is  unjust  if  it  is  provided  for  in  the  franchise 
contract. 

If  Proper  Regulation  Could  once  be  Established,  with  offi- 
cials continuously  elected  that  were  too  able  to  be  deceived, 
and  too  honest  to  be  corrupted,  it  seems  that  the  com- 
pany would  be  honest  too — that  its  corrupting  influence 
in  politics  would  cease,  and  that  its  stockholders  would 
not  have  an  interest  adverse  to  good  government.  When 
good  government  is  an  established  institution,  uniformly 
supported  by  a  strong  majority  of  the  people,  nothing 
but  loss  to  the  offender  will  be  the  result  of  trying  to 
undermine  it.  Up  to  the  present  time  opportunities  for 
gain  by  corruption  have  been  too  tempting  to  be  resisted. 
The  people,  not  appreciating  the  future  value  of  fran- 
chises, have  neglected  to  require  from  companies  an 
adequate  return.  The  opportunity  to  get  possession  of 
a  monopoly  business  affording  untold  profits  has  been 
made  easier  by  the  people's  choice  of  legislators  and 
aldermen  neither  able  nor  honest.  Then,  after  obtaining 
its  franchise,  the  company  finds  it  easy,  by  influencing 
officials,  to  get  the  kind  of  public  regulation  it  desires. 


I02  The  Plain  Facts  as  to  the  Trusts. 

Such  chances  to  secure  monopoly  gains  would  corrupt 
good  rncrj.  L'~>ng  •n'jiilj,^ence  of  the  companies  gives 
them  a  show  of  right,  and  has  enabled  them  to  resist  in 
the  court.'?  pUempls  at  bcrtter  regulation.^ 

Municipal  Corruption  Can  be  Overcome  whenever 
enough  people  want  to  overcome  it.  This  is  true, 
despite  the  strength  corporations  derive  from  possession 
of  wealth,  and  from  their  skill,  trained  by  long  success 
in  gaining  their  ends.  Men  fully  as  able  as  their  best, 
and  having  equal  experience  in  large  business  and  in 
care  of  property,  would  now  feel  honored  to  accept 
office,  perhaps  without  increase  of  present  public  salaries, 
if  elected  or  appointed  on  merit,  without  having  to  become 
politicians  in  order  to  get  votes.  To  serve  the  people 
successfully  now,  with  an  election  under  such  conditions, 
would  seem  to  be  a  greater  achievement,  and  more  attrac- 
tive to  superior  men,  than  to  serve  under  a  perfectly 
working  system  of  public  ownership. 

*  Laws  of  Little  Use  Unless  Voters  Require  Enforcement. — Sale  of 
a  street  railway  franchise  to  the  highest  bidder,  if  carried  out  honestly  as  a 
transaction  in  ordinary  business,  would  bring  a  price  so  high  as  to  save  to 
the  people  all  monopoly  gains,  leaving  to  the  purchaser  only  the  usual 
return  on  capital.  But  a  law  for  that  purpose  has  not  been  successful  in 
New  York.  ( Ely,  257. )  In  Cleveland  the  state  law  requiring  sale  of  fran- 
chise to  the  company  bidding  lowest  fares,  the  city  council  has  evaded  by 
allowing  new  lines  to  be  built  as  extensions  of  old  lines.  In  Kansas  City, 
a  few  days  before  the  Missouri  law  of  1895  took  effect,  requiring  franchises 
to  be  sold  to  the  highest  bidder,  the  city  council  extended  the  time  of  old 
street  railway  franchises,  and  granted  a  number  of  new  ones. 

A  Harvest  of  Monopoly  Profits  has  been  the  rule  in  practically  all  the 
large  American  cities.  Until  lately,  despite  public  opposition,  with  street 
railway  franchises  granted  practically  free  of  cost,  of  low  fares,  of  efificient 
regulation,  and  even  of  just  taxation — the  usual  net  income  of  a  company 
has  been  sufficient  to  cover  corruption  or  bribery  expenses,  and  to  admit  of 
doubling  or  trebling  in  stock  the  amount  of  capital  actually  invested.  A 
legislative  report  of  1897  showed  that  street  railway  stock  in  Chicago  paid 
17  per  cent  in  dividends,  which  was  deemed  to  be  at  lea.st  30  per  cent  on 


Municipal  Monopolies.  103 

To  Get  Superior  Men  Into  Office.  —  It  does  not  seem 
that  displacing  street  railway  control  by  ownership,  with 
a  permanent  corps  of  public  employees  in  charge  of  the 
railway,  would  add  greatly  to  the  dignity  and  importance 
of  present  city  offices.  The  claim  that  city  officials  do 
not  develop  high  efficiency  because  given  too  little  to  do, 
might  be  answered  by  pointing  to  the  hitherto  unmastered 
task  of  regulating  the  corporations  ;  or  admitting  that 
their  task  is  light,  one  might  answer  that  at  least  success 
in  easy  things  should  be  secured  first.  It  is  difficult  to 
perceive  how  public  ownership  would  secure  for  good 
government  the  active  support  of  the  well-to-do  classes. 
They  now  stand  aloof  in  the  emergency  of  granting  a 
franchise,  when  the  need  of  their  help  is  greatest,  and 
is  required  for  but  a  short  time  ;  while  under  public 
ownership  the  need  for  it  would  be  less  intense,  but 
continuing  always.  Public  ownership  would  take  from 
stockholders  in  municipal  monopolies,  not  a  large  ele- 
ment in  most  cities,  the  inducement  to  seek  private  gain 
at  public  expense ;  but  would  they  be  more  public- 
spirited  than  the  other  well-to-do  people  mentioned  ?  It 
seems  doubtful  if  public  ownership  of  all  local  monopo- 
lies would  add  sufficiently  to  the  importance  of  a  city 
government  to  draw  out  the  interest  of  these  classes 
whose  help  is  now  so  much  needed.  And  the  idea  that 
public  ownership  would  draw  superior  men  into  office 
seems  to  overlook  the  fact  that  they  would  gladly  serve 
now  if  they  could  be  elected.  The  real  remedy  for  all 
the  troubles,  it  appears,  as  stated  above,  is  to  get  the 
voters  to  want  good  men   and  good   government.     At 

the  cash  investment.  In  1898  street  railway  franchises  were  estimated  to 
be  worth  $75,000,000  in  Philadelphia,  and  $60,000,000  in  Chicago.  (P. 
.S*.  Quarterly,  1898,  171.) 


104  'rf^^  Plain  Facts  as  to  the  Trusts. 

present,  the  masses  too  often  prefer  the  boss  and  his 
jobs.^ 

When  We  Reach  the  Honest  and  Ef&cient  Civil  Service 
of  Europe,  but  not  before,  we  may  have  admirably- 
governed  cities,  in  which  the  people  obtain  from  their 
money  spent  as  much  value  in  service  and  in  materials 
as  do  the  best  managed  private  corporations.  And  when 
all  classes,  especially  the  educated  and  the  well-to-do, 
have  developed  a  steady  interest  and  pride  in  the  purity 
and  efficiency  of  their  city  government,  the  wisdom  of 
public  ownership  may  be  unquestionable.  It  would  seem 
reckless,  before  that  civic  pride  has  come  to  prevail,  to 
embark  in  extensive  public  ownership,  with  the  hope  that 
necessity  would  force  the  people  to  purify  politics,  and  to 
develop  civic  pride  at  once. 

The  Study  of  Municipal  Problems. — The  present  study 
by  able  men  of  the  problems  of  municipal  monopoly,  and 
the  people's  growing  interest  in  the  subject,  led  by  munic- 
ipal leagues  and  civic  federations,  promise  to  bring  soon 
a  decided  change  for  the  better  in  public  control.  Here 
as  elsewhere  the  first  essentials  of  progress  are  desire  for 

'  The  City's  Call  for  Able  Men.— The  New  York  Nation  of  March 
13,  1902,  is  eloquent  over  the  opportunity  in  modern  municipal  government 
for  men  of  talent  in  public  affairs.  "  The  very  difficulties  are  like  a  thrill- 
ing summons  to  civic  patriotism.  Here  are  the  complicated  questions  of 
taxation,  transportation,  of  bridges  and  tunnels  and  docks,  water  supply 
and  sanitation.  .  .  .  The  task  is  arduous,  but  for  that  reason  all  the  more 
attractive  to  men  conscious  of  power.  It  touches  the  life  and  welfare  of 
millions.  .  .  .  The  increasing  appeal  which  municipal  public  life  makes  to 
our  best  and  strongest  will  call  into  the  service  of  our  cities  a  distinctly 
higher  order  of  talent,  provided  only  that  the  citizens  show  steadiness  of 
purpose  enough  to  make  a  career  for  it,  both  stable  and  rewarding,  and 
sense  enough  to  delight  to  honor  him  that  cleanseth  a  city  above  one  that 
merely  taketh  it."  The  public  need  for  high  achievement  is  pressing,  and 
able  men  stand  ready  to  serve.  But  it  is  the  voters  who  must  assign  them 
to  the  task.     The  Chicago  Municipal  League  is  now  doing  this  admirably. 


Municipal  Monopolies.  105 

it,  and  knowledge  of  means  for  attaining  it.  Our  justly 
prized  system  of  educating  the  youth  needs  to  be  sup- 
plemented by  a  practice  among  adults  of  continuing  to 
study  through  life,  with  an  especial  view  to  performing 
well  as  they  arise  the  duties  of  citizenship.  It  would 
seem  that  the  wise  course  is  first  to  make  a  faithful  and 
heartily  supported  effort  in  the  public  control  undertaken, 
and  thus  to  develop  in  the  people  and  their  officials  a 
knowledge  and  fitness  for  either  kind  of  ownership  that 
may  eventually  be  adopted  permanently.  Experience 
in  determined  control  will  probably  show  clearly  if  pub- 
lic ownership  is  really  to  be  the  best  policy  in  this 
country,^ 

1  Failures  in  Public  Ownership. — Toledo,  after  ten  years  experience, 
recently  leased  to  a  private  corporation  a  natural  gas  plant  that  has  cost  her 
people  over  a  million  in  bonds,  and  a  half  million  more  in  interest.  The 
rent  income  will  be  much  less  than  the  annual  interest  charge.  "  Many 
of  those  who  shouted  loudest  for  the  gas  plant  got  their  start  in  life  from 
it,  and  now,  having  become  taxpayers,  urge  the  lease,  to  save  them  taxes." 
(Toledo  Bee.^  It  was  in  connection  with  city  ownership  of  gas  works 
that  corruption  first  became  notorious  in  Philadelphia  some  years  ago ; 
though  it  is  said  the  corruption  was  designedly  fostered  by  the  very  capital- 
ists to  whom  the  gas  works  passed  in  the  change  to  private  ownership. 
The  mayor  reported  one  year  a  profit  of  |i6o,oco,  but  experts  found  there 
had  been  really  a  loss  of  ^100,000.  There  have  been  many  other  cases  in 
which  public  ownership  proved  unsatisfactory. 

As  a  Method  of  Control,  limitation  of  profits  to  a  certain  percentage 
on  stock  is  evaded  by  means  of  high  salaries  and  stock  watering.  If 
obeyed  it  encourages  waste,  or  makes  a  small  traffic  at  high  rates  best  for 
the  company.  Though  the  main  object  of  control,  as  of  selling  franchises, 
is  to  save  monopoly  profits  from  the  company  for  the  people,  by  lowering  its 
income  on  capital  to  the  usual  rate  in  other  business,  increase  of  profit  must 
be  allowed  to  induce  lowering  of  fares  for  the  sake  of  increasing  business, 
and  to  induce  enlargement  or  improvement  of  service  for  the  same  pur- 
pose. The  approved  method  of  controlling  railroad  and  city  monopolies 
is  to  require  such  rates  and  such  management  as  in  the  long  run  will  be 
best  for  both  the  company  and  the  public.     (Hadley,  166.) 

A  Tax  on  Net  Earnings  is  an  inducement  to  make  them  small  by 
means  of  high  salaries,  but  it  cannot  be  shifted  by  changing  rates.     Some 


1 06  The  Plain  Facts  as  to  the  Trusts. 

Socialism  or  Not  ? — After  all,  the  undertaking  of  new 
functions  by  the  government — national,  state,  or  local — 
is  only  to  be  tested  by  ascertained  or  foreseen  results. 
If  the  government  could  do  things  for  the  people  better 
and  more  cheaply  than  they  can  do  them  for  themselves 
— adding  to  their  supplies  and  not  undermining  individ- 
ual energy  and  independence  of  character — government 
functions  no  doubt  would  gradually  increase  until  the 
extreme  socialistic  hope  was  realized  in  public  ownership 
of  all  land,  capital,  and  business.     From  the  partial  so- 

states  tax  railroads  on  gross  earnings,  Ihongh  perhaps  those  succeeding 
best  are  the  ones  taxing  on  actual  value  or  earning  power,  as  shown  mainly 
by  price  of  their  shares  and  bonds.  With  a  street  railway,  a  tax  on  gross 
earnings  may  make  smaller  business  at  higher  rates  preferable  to  the  com- 
pany. But  street  car  rates  are  usually  fixed  by  law  and  custom,  and  rail- 
road rates  are  falling  further  under  control  of  the  state.  A  lump  sum, 
such  as  a  yearly  rental  or  tax  on  franchise,  has  none  of  the  bad  effects 
mentioned.  It  cannot  be  shifted,  and  leaves  highest  aggregate  profit 
dependent  upon  economy,  good  service,  and  low  rates.  (Bullock,  304.) 
For  Safeguarding  the  Public  from  Monopoly,  besides  franchise  sale 
and  fare  restrictions,  revaluation  of  franchise  every  ten  years  is  recom- 
mended by  some  authorities,  with  arrangement  for  purchase  by  the  city  of 
the  company's  property  at  an  appraised  price.  The  following  are  recom- 
mendations offered  by  Professor  H.  C.  Adams  in  a  recent  address  to  the 
Detroit  Municipal  League.  Make  a  franchise  exclusive,  for  competition 
results  in  consolidation,  with  excessive  capital  to  pay  dividends  upon  after- 
ward. Allow  8  per  cent  dividends  upon  capital  really  invested,  withhold- 
ing to  the  city  earnings  that  might  be  made  on  franchise  value.  There 
could  then  be  no  common  stock  based  on  expectations,  whose  value  belongs 
to  the  public  by  whose  growth  it  is  created.  As  publicity  is  the  cure  for 
evils,  have  the  company's  accounts  inspected  by  city  auditors.  Demand  a 
sinking  fund  to  be  laid  by  for  improvements.  Require  uninterrupted  ser- 
vice with  a  franchise  clause  providing  for  arbitration  of  strikes,  and  another 
clause  fixing  the  form  of  contract  with  employees.  Franchises  should  pro- 
vide definitely  for  changes  in  their  terms,  with  provision  for  possible  com- 
pensation to  the  company.  "  The  single  objection  to  this  is  that  no  com- 
pany would  care  to  accept  such  a  franchise.  That  is  then  a  direct  argument 
for  municipal  ownership."  But  for  the  present  these  franchise  restrictions 
can  be  carried  as  far  as  a  company  W// accept.  Cleveland's  present  ex- 
perience, previously  described,  will  be  instructive  in  this  respect. 


Municipal  Monopolies.  1 07 

cialism  of  primitive  times  there  was  a  change  until  the 
extreme  of  individuahsm  —  every  person  for  himself 
alone,  with  the  least  help  from  government — was  reached 
in  England  and  America.  Now  the  common  sense  view 
is  coming  to  prevail,  that  whether  a  practice  is  socialistic 
or  individualistic  is  a  trivial  matter.  The  proper  test  is, 
Does  it  yield  best  results,  in  the  net  well-being  of  the 
whole  people  ? 

Whichever  Works  Best.  —  Therefore,  where  public 
ownership  will  undoubtedly  work  best  in  permanent  net 
results,  by  all  means  have  it.  Many  a  city  now  wisely 
operates  its  own  electric  lighting  system,  the  same  as  its 
water  works,  sewers,  bridges,  and  stone-crushing  equip- 
ment for  streets.  All  these  services  the  city  must  have. 
The  electric  service  is  as  proper  as  the  others  if  by  own- 
ing it  the  city  can  get  in  the  long  run  better  and  cheaper 
light,  London,  Glasgow,  and  other  British  cities  are  en- 
tering extensively  into  public  ownership  and  operation 
of  street  railways.  In  large  cities  these  too  are  a  neces- 
sity. Municipal  activity  in  Great  Britain,  though  her 
people  have  always  been  noted  for  individualism,  has 
advanced  further  than  in  any  other  country,  and  is  now 
successful,  popular,  and  rapidly  increasing.  It  has  been 
extended  to  telephones,  and  even  to  model  tenements 
and  lodging  houses.^ 

*  Municipal  Ownership  in  America  is  now  represented  by  between  400 
and  500  electric  light  plants,  including  Chicago  and  Detroit.  Richmond, 
Va.,  and  Wheeling,  are  successful  with  public  gas  works.  The  only  pub- 
lic street  railways  have  been  the  short  line  across  Brooklyn  bridge  (now 
leased),  and  a  line  with  a  half  dozen  cars  at  Port  Arthur,  Canada. 
Toronto  owns  its  excellent  system  of  electric  lines,  but  leases  it,  putting 
fares  low,  and  reserving  a  share  of  earnings.  Toronto's  gas  plant  also  has 
just  passed  under  ownership  of  the  city.  A  considerable  number  of 
American  cities,  mostly  small  ones,  still  have  privately  owned  water 
works.     London's  water  supply  is  yet  in  private  hands,  despite  her  many 


io8  TJie  Plain  Facts  as  to  the  Trusts. 

Public  Ownership  Will  Probably  Prevail.  —  It  seems 
probable  that  public  ownership  and  operation  of  street 
railways,  gas  works,  electric  lighting  plants,  and  tele- 
phones will  eventually  prevail  in  America,  as  it  is  now 
fast  coming  to  prevail  in  Europe,  We  shall  be  ready 
for  it  when  the  city's  corps  of  officials  and  employees  has 
come  to  consist  regularly  of  honest  and  efficient  men, 
and  when  the  permanence  of  this  character  in  them  is 
guaranteed  by  public  spirit  and  civic  pride  in  a  large 
majority  of  the  voters.  There  is  no  lack  of  capable 
men,  ready  to  serve  successfully  in  controlling  city  mon- 
opolies under  private  ownership,  or  in  managing  them 
under  ownership  by  the  public.  In  the  latter  case  the 
present  private  managers  would  be  kept  in  their  positions. 
But  the  voting  public  must  first  reach  a  plane  on  which 
it  can  be  trusted  to  keep  public  offices  in  the  hands  of 
the  best  men  ;  and  to  obtain  their  best  service  it  may  be 
necessary  to  pay  them  salaries  approaching  those  they 
get  in  other  professions,^ 

Public  Ownership  Not  Objectionable  in  Cities  as  with 
Railroads.  —  Public  ownership  and  operation  of  munici- 
pal monopolies,  as  previously  indicated,  is  not  open  to 
the  serious  objection  urged  against  government  owner- 
ship of  railroads.  With  railroads  there  would  be  cen- 
tralized management  under  national  officials,  so  far  re- 
moved from  a  voter's  power  as  to  control  him  instead  of 
being  controlled  ;  while  with  street  cars  and  gas  works  all 
would  be  done  more  closely  under  the  view  and  power 

public  enterprises  in  other  lines.  In  Glasgow  profits  from  public  enter- 
prises have  greatly  reduced  taxation.  Generally  such  profits  are  given 
to  the  public  in  lovi'er  charges.  Great  possibilities  of  municipal  better- 
ment are  the  prize  within  reach  of  good  government.  Birmingham's  suc- 
cess in  this  respect  is  often  referred  to. 
1  Ely,  262, 


Municipal  Monopolies.  109 

of  the  voter,  with  whom  pride  in  present  success,  and  in 
future  possibilities,  might  develop  his  own  civic  character 
to  the  utmost,  and  secure  for  the  city  the  best  govern- 
ment attainable.  Moreover,  in  local  monopolies  there 
are  no  questions  of  terminal  handling,  classification  of 
freight,  or  equality  of  treatment  to  different  communities. 
Unquestioned  Functions  of  Government. — The  national 
government  may  well  increase  its  service  in  the  mainte- 
nance of  light-houses  and  life-saving  stations,  in  agricul- 
tural experiments,  in  collection  of  commercial  informa- 
tion from  abroad,  and  in  similar  lines  of  clearly  useful 
activity  not  otherwise  to  be  performed  as  well.  The 
states  also  may  well  maintain  agricultural  and  mining 
schools,  foster  general  education,  and  care  for  the  insane 
and  other  properly  dependent  classes.  All  this  is  good, 
so  long  as  the  service  is  needed,  would  not  otherwise  be 
done  as  well,  does  not  unfavorably  affect  character  and 
habits,  and  is  not  causing  neglect  of  other  lines  of  gov- 
erment  service  more  important.  On  these  subjects  pre- 
vailing opinion  is  in  practical  agreement.^ 

'  Where  Public  Ownership  is  Desirable. — Professor  Seligman  teaches 
that  public  ownership  is  desirable  ( I )  where  it  promotes  a  widespread  inter- 
est of  society,  (2)  where  the  amount  of  capital  required  is  not  too  large, 
and  (3)  where  management  is  comparatively  simple  and  certain.  By  these 
criteria  he  thinks  the  argument  for  public  telegraphs  is  substantially  as  strong 
as  that  for  a  public  postal  service,  and  that  public  ownership  of  telephones 
also  is  clearly  wise  ;  that  street  car  service  is  more  suitable  for  public  owner- 
ship than  telegraphs,  or  even  water  works,  but  that  because  street  railways 
have  been  revolutionized  in  the  last  few  years  (changed  to  electricity),  and 
in  five  or  ten  years  may  be  revolutionized  again,  it  is  better  for  the  present 
with  them  to  continue  public  regulation  of  private  ownership.  (Indus. 
Com.  IV.  130. ) 

How  Public  Ownership  Has  Grown. —  In  his  testimony  before  the 
Industrial  Commission  (Vol.  IX. )  Professor  Parsons,  quoting  from  Professor 
Seligman,  gave  the  following  outline  of  historical  changes  in  the  control  of 
means  of  public  service  : 


no  The  Plain  Facts  as  to  the  Trusts. 

1.  They  were  held  in  private  hands  for  extorting  tolls,  as  early  European 
bridges  and  canals,  and  sometimes  rivers. 

2.  Next,  charges  and  management,  still  private,  are  regulated  by  law. 

3.  The  government  takes  the  service,  but  operates  it  for  profit,  as  at 
present  with  European  state  railroads. 

4.  The  aim  is  simply  to  cover  expenses,  as  now  with  postal  service  and 
water  supply. 

5.  Cost  is  borne  by  all  in  taxation,  and  the  use  of  the  service  is  made 
free,  as  at  present  with  roads,  bridges,  and  some  canals,  and  as  some 
American  city  officials  have  proposed  as  to  water  supply. 

Taxation  on  All,  or  Fees  from  Users  of  the  Service  ? — But  the  line 
seems  clear  enough  between  services  to  be  charged  for,  and  services  which 
the  public  good  requires  to  be  free.  Roads  and  bridges  must  be  free, 
because  they  are  not  operated  at  large  expense,  and  are  needed  so  constantly, 
by  so  many  of  the  people,  that  tolls  would  hamper  civilization.  The  same 
is  true  of  police  and  fire  protection.  Water  is  now  free  as  a  rule,  in  street 
hydrants,  and  in  public  baths  and  closets,  except  as  consumers  are  properly 
required  to  pay  according  to  quantity  used.  The  same  is  true  of  light. 
Schools  are  free,  being  equally  needed  by  all,  and  being  especially  impor- 
tant to  maintain  good  citizenship.  Street  cars  are  not  needed  or  used  by  all 
to  anything  like  an  equal  extent.  The  same  is  true  of  mail,  express,  and 
telegraph  facilities,  and  still  more  true  of  railroads. 

To  Make  These  Free  Would  Harm  the  Public,  causing  waste  of  labor 
and  capital  in  useless  hauling,  as  was  explained  in  connection  with  freight 
rates.  Social  welfare  requires  that  they  be  paid  for  in  proportion  to  the 
use  made  of  them.  While  no  more  than  a  fair  profit  should  be  collected  on 
anything,  none  of  these  things,  perhaps,  should  long  be  furnished  at  a  loss 
except  mail  service,  and  that  only  in  minor  particulars,  not  in  aggregate 
results  where  careful  management  would  make  it  self-supporting.  Greater 
strictness  in  admitting  printed  matter  at  newspaper  rates  is  expected  to 
reduce  our  postal  deficit.  Rates  too  low  to  newspapers  is  one  cause  of  the 
deficit  with  British  telegraphs,  causing  a  waste  of  labor  in  sending  long 
speeches  of  many  columns. 

High  Wages  in  Public  Service. — The  fact  that  labor  leaders  urge 
government  ownership,  because  employees  would  then  have  higher  wages 
and  fewer  hours,  is  a  point  against  it.  While  the  good  citizen  desires  to 
see  wage  workers  enjoying  the  best  possible  living,  it  is  nevertheless  true 
that  every  dollar  paid  a  public  employee  above  the  most  his  service,  talents, 
and  responsibility  would  bring  elsewhere,  is  a  tax  on  the  people  for  his 
personal  benefit.  It  falls  on  privately  employed  workers  too,  reducing  net 
income  to  divide  in  wages ;  and  so  far  as  public  employees  kill  time,  labor 
force  is  wasted  that  otherwise  would  add  to  society's  supply  of  goods. 
Losses  in  street  car  service  would  be  a  tax  likewise.     The  government  can- 


Mimicipal  Monopolies.  ill 

not  be  generous  if  it  is  to  be  just.  It  has  nothing  but  what  it  takes  from 
its  citizens.  The  advocates  of  public  ownership  are  doing  a  good  work, 
however,  when  they  teach,  like  Professor  Parsons,  that  it  should  be  self- 
supporting,  and  that  to  get  ready  for  carrying  it  out  extensively,  there  must 
first  be  public  ownership  of  the  government  itself — a  wresting  of  power 
from  bosses  and  monopolists.  When  the  people  have  done  this,  they  may 
know  clearly  how  far  to  go  in  the  public  ownership  movement. 


CHAPTER   VI. 

REMEDIES    FOR   THE    EVILS    OF   TRUST    MONOPOLIES. 

Tariff  Reform. — As  with  natural  monopolies,  so  with 
the  strong  artificial  monopolies,  remedies  for  evils  must 
be  found  chiefly  in  law.  Where  a  trust's  power  to  ex- 
act excessive  profit  rests  upon  a  tariff  duty  that  shuts 
out  its  commodity  from  abroad,  removal  or  reduction  of 
the  duty  would  be  a  simple  and  effectual  remedy — a  de- 
served punishment  for  the  trust's  abuse  of  the  favor 
shown  its  industry  by  the  public  in  the  tariff  When 
the  words  "  control  in  price  up  to  the  importing  point " 
have  any  application  to  a  trust's  business,  it  is  the  tariff 
from  which  it  derives  its  power  to  exact  the  upper  por- 
tion of  its  price.  The  words  mentioned,  in  substance, 
occurred  in  testimony  given  in  1899  by  President  H.  O. 
Havemeyer,  of  the  sugar  trust.  His  saying  then  that 
"  the  tariff  is  the  mother  of  them  all  "  must  of  course  be 
restricted  to  mean  all  the  trusts  to  which  the  tariff  duty 
is  the  basis  of  a  considerable  portion  of  the  price  charged. 

How  Important  a  Source  of  Profit  the  Tariff  Is  to  the 
sugar  trust  may  be  known  from  the  powerful  influence  it 
successfully  exerted  upon  the  Senate  in  1894  to  change 
the  Wilson  schedule  on  refined  sugar  into  terms  favora- 
ble to  itself*     The  tariff  is  likewise  a  source  of  advan- 

'The  Motive  of  Mr.  Havemeyer's  Remark  against  the  tariff,  some 
have  thought,  was  that  he  would  be  willing  to  give  up  the  duty  on  refined 
sugar  if  the  duty  was  also  removed  on  raw  sugar,  which  is  his  raw  material. 
Beet  sugar  producers  seem  to  fear  that  it  is  also  for  the  sake  of  checking  their 
industry  that  the  trust  now  favors  free  admission  of  raw  sugar  from  Cuba. 

112 


Remedies  for  the  Evils  of  Trust  Monopolies.       1 1 3 

tage  to  any  other  trust-controlled  business  that  would 
strongly  resist  a  reduction  of  duties.  If  as  many  lines 
of  business  would  now  oppose  tariff  reduction  as  in  1894, 
the  tariff  would  probably  be  found  to  be  the  cause  of  at 
least  a  portion  of  the  high  selling  price  in  the  case  of  a 
good  many  trusts.  It  is  so  with  every  protected  trust 
whose  commodity  regularly  sells  higher  at  home  than 
the  same  commodity  sells  abroad — higher  to  a  larger 
amount  than  the  freight  and  other  costs  of  shipping  it 
to  America.  The  president  of  the  tin-plate  trust  testi- 
fied in  1899  that  without  protection  there  would  have 
been  in  1898  no  tin-plate  industry  to  consolidate.  Per- 
haps the  trust's  perfected  means  of  production  would 
now  make  lower  protection  sufficient.  Its  12^  per  cent 
dividends  on  heavy  over-capitalization  show  that  it  gets 
great  profits  from  somewhere,  and  as  its  prices  are  mate- 
rially higher  than  prices  abroad,  its  profits  to  that  extent 
must  come  from  the  tariff.  The  window  glass  trust  is 
another  that  takes  advantage  of  a  high  tariff  duty  to 
exact  large  profits. 

Selling  Cheaper  Abroad  Than  at  Home.  —  Eight  trusts 
replied  to  the  Industrial  Commission  ^  that  they  give  lower 
prices  abroad  to  secure  a  foreign  market,  though  a  larger 

The  Scandal  of  the  Sugar  Trust's  Control  of  the  august  Senate,  by 
methods  involving  elements  of  bribery,  is  briefly  outlined  by  Taussig,  P.  S. 
Quarterly,  1894,  tariff  article.  "  The  part  certain  corporations  have  played 
in  corrupting  poHtics  is  quite  the  gravest  danger  under  which  the  country 
suffers.  The  new  combinations  add  tenfold  to  their  power."  (J.  G. 
Brooks,  Engineering  Magazine,  Dec.  1899. ) 

1  Labor  Bulletin,  No.  29.  The  article  in  this  Bulletin  appeared  before 
the  investigation  was  completed.  In  his  minority  report  Mr.  Phillips,  of 
the  Commission,  says  that  of  2,000  concerns  questioned,  only  416  replied 
on  the  matter  of  selling  cheaper  abroad,  of  which  about  75  answered  that 
they  do  sell  cheaper.  He  believes  that  many  do  so  among  those  that 
failed  to  reply.  He  points  out  that  if  prices  were  properly  lowered  at  home, 
there  would  be  no  surplus  to  dump  abroad. 
8 


114  '^^^(^  Plain  Facts  as  to  the  Trusts. 

number  replied  that  they  do  not ;  while  President  Chis- 
holm  testified  that  the  print  paper  trust  gets  highest  prices 
and  highest  profits  from  its  foreign  sales.  President 
Schwab  testified  that  the  steel  trust  sells  much  cheaper 
abroad,  and  prominent  witnesses  testified  accordingly- 
concerning  other  trusts.  "  We  know  that  many  trusts, 
and  some  other  manufacturers,  have  sold  their  surplus 
abroad  at  prices  very  far  below  those  charged  at  home."^ 
One  reason  given  for  the  fact  that  some  finished  goods 
are  sold  abroad  cheaper  than  at  home  is  that  the  foreign 
retailer  adds  less  profit.  With  monopolized  products, 
such  as  patented  articles,  the  reason  for  a  lower  price 
abroad  is  that  it  brings  larger  sales  and  greater  aggre- 
gate profit,  people  there  being  too  poor  to  pay  the  price 
easily  obtained  in  America.  Prompt  payment  abroad  by 
importers  is  said  to  be  the  reason  for  lower  prices  on 
farm  machinery,  which  in  America  is  usually  sold  to  con- 
sumers on  long  credit,  with  heavy  expense  of  collection. 
But  the  leading  plow  manufacturers  give  large  discounts 
to  home  dealers  paying  them  cash.  In  any  case,  it  would 
seem,  cash  from  home  ought  to  be  as  acceptable  as  cash 
from  abroad.  Another  reason  given  is  that  a  manufac- 
turer selling  abroad  through  exporting  merchants  has  no 
expense  for  foreign  advertising  and  agencies.  This  would 
indicate  that  a  producer  offering  good  values  can  sell 
abroad  without  joining  a  trust. 

That  It  Employs  Labor  and  Increases  Exports,  however, 
keeping  plants  in  active  operation,  were  the  main  reasons 
given  by  the  trust  officials  for  selling  their  goods  cheaper 
abroad  than  at  home.  They  testified  boldly,  seeming  to 
assume  that  the  ends  justified  the  means.  Opinion  is 
often  expressed  which  apparently  involves  the  idea  that 

1  Bullock,  N.  A.  Revinv,  July,  1901, 


Remedies  for  the  Evils  of  Trust  Monopolies.        1 1 5 

anything  which  employs  labor  and  increases  exports  is 
to  be  commended.  Yet  it  can  hardly  be  that  in  America 
natural  employment  is  so  scarce,  nor  wage  workers  so 
poor,  that  they  need  or  demand  a  levy  in  high  prices  on 
the  public  for  their  assistance.  And  if  they  did  need 
such  help,  the  monopoly  trust  has  not  been  given  the 
sovereign  function  of  collecting  and  disbursing  poor  rates. 
American  products  also  are  supposed  to  be  wanted  every- 
where at  a  fair  price,  without  contributions  from  home  to 
aid  in  forcing  them  on  people  abroad, 

A  Sound  Reason  for  Selling  Cheaper  to  Some  Than  to 
Others. — But  so  far  as  charging  one  buyer  more  than  an- 
other is  based  on  "  what  the  traffic  will  bear,"  it  may  often 
be  fully  justified.  This  is  the  case  with  varying  prices 
in  the  home  market.  A  manufacturer  gets  lower  net 
prices  on  sales  in  Denver  than  at  his  factory  in  New  Eng- 
land, and  prices  lower  still  in  San  Francisco.  He  must 
reduce  his  price  somewhat  to  share  the  freight  charges, 
and  thus  reach  in  distant  places  a  larger  circle  of  buyers. 
It  is  for  this  reason  that  long  distance  freights  are  low  ; 
charging  more  would  stop  the  traffic.  The  manufac- 
turer can  sell  as  low  as  he  does  in  New  England  because 
the  small  profit  from  distant  sales  helps  to  make  up  the 
fair  aggregate  he  must  realize  to  continue  in  operation. 
Perhaps  in  all  business  the  near  customer,  whose  patron- 
age is  held  most  securely,  pays  usually  the  highest  prices 
if  he  is  not  known  to  be  a  close  buyer.  But  he  can  easily 
protect  himself  by  comparing  prices  and  qualities  with 
those  of  other  dealers,  and  by  utilizing  the  pressure  of 
their  competition. 

Under  the  Tariff  the  Case  is  Different  with  sales  abroad. 
As  prohibitory  duties  ordinarily  shut  out  imports  of  iron 
and  steel,  and  of  many  other  things,  a  home  buyer  makes 


1 1 6  The  Plain  Facts  as  to  the  Trusts. 

no  effort  to  know  foreign  prices,  for  he  cannot  take 
advantage  of  them.  Therefore,  where  American  manu- 
facturers, in  selHng  abroad,  go  further  than  the  common 
practice  of  sHghtly  shading  prices  anywhere  to  get  a  new 
customer,  or  than  the  very  shght  reductions  made  on 
sales  to  distant  buyers  at  home,  they  use  the  tariff  at 
home  to  exact  a  monopoly  tax.  It  can  scarcely  be 
doubted  that  during  the  last  few  years  such  a  tax  has 
been  collected  to  the  extent  of  hundreds  of  millions  ol 
dollars.  In  January,  1902,  scarcity  in  America  led 
to  efforts  to  ship  American  iron  back  from  Europe, 
our  duties  being  remitted  on  return  shipments  made 
promptly.' 

Trusts  in  Great  Britain. — During  the  year  1900  trusts 
were  rapidly  organized  in  Great  Britain,  under  the 
influence  of  the  wide-reaching  and  immensely  profitable 
trust-promoting  movement  in  America.^    But  the  absence 

iSee  in  Chapter  XII.  paragraphs  relating  to  payment  of  the  duty  by 
the  foreign  seller. 

*  Elsewhere  in  Europe. — A  report  of  Professor  Jenks  to  the  Industrial 
Commission  in  1901  says  that  in  Germany  and  Austria  the  extent  and 
power  of  trusts  are  probably  as  great  as  in  the  United  States,  though  their 
plan  of  organization  is  different.  In  France  the  trust  movement  is  evident, 
but  to  avoid  violating  law,  the  companies  depend  largely  upon  mere  verbal 
agreements.  A  commission  sent  by  the  French  Minister  of  Commerce  is 
now  in  America,  studying,  among  other  things,  the  organization  of  trusts. 
British  trusts  are  admirably  described  in  an  article  in  the  Review  of  Reviews 
for  November,  1900,  written  by  Robert  Donald.  An  amalgamation  of 
British  steel  industries,  to  be  a  trust  of  trusts  like  the  United  States  Steel 
Corporation,  is  now  being  formed  by  an  American  organizer,  J.  R.  Bartlett, 
the  rail  combination  to  have,  it  is  said,  a  capital  of  $20,000,000,  without  a 
drop  of  water.  One  very  important  condition  against  monopoly  power  in 
Europe  is  that  favoring  discrimination  from  railroads  is  there  practically 
unknown.  In  all  the  advanced  countries  industry  has  been,  or  is  being, 
consolidated  and  harmonized,  to  reduce  the  wastes  of  friction  and  of  com- 
petition to  the  minimum.  All  this  is  good  when  monopoly  is  not  the  object 
sought.     In  Germany  the  government  favors  trusts,  uniting  with  and  buying 


Re  7ne dies  for  the  Evils  of  Trust  Monopolies.        1 1 7 

of  a  protective  tariff  places  the  British  consumer  in  a 
very  different  position  from  that  of  his  American  cousin 
in  exposure  to  trust  rapacity.  The  British  trust  can  only 
raise  the  price  of  its  commodity  up  to  the  lowest  price 
abroad,  with  the  addition  of  the  small  aggregate  of 
freight  and  other  charges  necessary  to  ship  from  Ger- 
many and  place  on  sale  in  Great  Britain.  After  paying 
tribute  to  their  home  trusts,  therefore,  the  British  are 
sure  to  fare  as  well  as  any  other  people — as  "  the  most 
favored  nation."  Unless  they  have  heretofore  had  the 
benefit  of  much  lower  prices  than  any  other  commercial 
people,  their  trusts  will  have  a  narrow  field  of  price  dif- 
ference to  work  in.  But  those  American  trusts  whose 
price  is  based  on  the  tariff  are  limited  only  by  the  amount 
of  the  duty  in  time  of  strong  demand,  and  are  little  con- 
cerned as  to  how  much  lower  their  commodity  is  sold  in 
other  countries.^ 

The  Formation  of  International  Trusts,  uniting  the 
producers  of  an  industry  all  over  the  commercial  world, 
has  been  mentioned  to  show  the  uselessness  of  tariff  re- 

from  them.  It  thus  strengthens,  for  the  present  at  least,  the  nation's  indus- 
trial position,  at  the  cost  of  home  consumers,  who  under  a  paternal  and 
protective  policy  are  used  to  bearing  burdens ;  though  there  a  strong  gov- 
ernment is  prepared  to  prevent  many  abuses.     (  The  Nation,  Jan.  2,  1902. ) 

'Trusts  Not  Feared  in  England. — "In  England  there  is  very  little 
popular  objection  to  trusts,  because  they  have  developed  a  certain  power 
for  good  and  very  little  for  evil."  (J.  B.  Clark,  P.  S.  Quarterly,  June, 
1900.) 

British  Trusts  Already  Weakening. — Lack  of  a  tariff  duty  has  already 
been  weakening  a  number  of  British  trusts.  Having  bought  plants  at  high 
prices,  and  being  unable  to  raise  selling  price  above  that  abroad,  they  are 
unable  to  earn  profits  on  their  excessive  capital,  and  their  stock  has  been 
falling  fast.  Only  two  British  trusts  are  said  to  have  done  well  as  monop- 
olies. These  are  the  Coats  thread  trust,  and  the  fine  cotton  spinners' 
trust.  The  basis  of  the  former's  monopoly  is  described  further  on.  The 
latter  is  successful  because  its  business  exists  in  no  other  country.  Such 
causes  of  monopoly  are  rare.     {Public  Opinion,  Sept.  19,  1901.) 


i  l8  The  Plain  Facts  as  to  the  Trusts. 

duction  in  America — or  more  likely,  in  some  cases,  to 
turn  attention  away  from  such  reduction  because  it  would 
be  the  opposite  of  useless.  The  international  trust  is  a 
bugaboo  that  will  not  cause  much  fright.  The  larger 
the  territory,  and  the  less  acquainted  the  producers,  the 
weaker  must  be  the  trust  combination.  If  a  single  pty 
had  a  tariff  to  protect  its  own  producers,  say  makers  of 
signs  for  business  places,  its  few  sign  painters  would 
easily  agree  that  they  ought  to  have  higher  prices.  A 
state  tariff  against  other  states  would  probably  have  no 
effect,  because  agreement  among  its  many  and  widely 
separated  sign  painters  would  be  impracticable. 

No  Trust  Where  Producers  Are  Many  and  Easily 
Started.  —  An  effectual  monopoly  trust  covering  the 
whole  United  States  can  be  formed  only  in  those  indus- 
tries in  which  separate  producers  of  importance  are  not 
very  numerous,  and  to  which  access  of  new  competing 
producers  is  difficult,  by  reason  of  necessity  for  large 
capital,  of  secret  processes,  patents,  or  limited  supply  of 
raw  materials.  If  there  had  been  as  many  and  as  widely 
separated  producers  of  wire  and  sugar  as  of  cotton  cloth, 
shoes,  and  canned  tomatoes,  we  should  have  had  no  wire 
trust,  nor  sugar  trust.  Effective  monopoly  agreement, 
to  raise  prices  and  limit  output,  among  so  many  compet- 
ing producers  as  the  shoe  manufacturers  (2,082  fac- 
tories in  1890  and  now  fast  increasing),  would  have  been 
impracticable ;  and  the  hazardous  investment  of  buying 
all  the  plants  in  operation  would  not  have  prevented  the 
easy  starting  of  new  ones  when  prices  were  raised.  ^ 

^"The  Unsuccessful  Monopolistic  Enterprises  have  outnumbered 
the  successful,  while  the  latter  have  constantly  been  confronted  with  new 
independent  enterprises.  Only  in  a  minority  of  instances  have  combina- 
tions acquired  an  effective  control  of  prices. "  (Bullock,  322.)  This  quo- 
tation is  less  true  now  than  when  it  was  written,  1897. 


Remedies  for  the  Evils  of  Trust  Mottopolics.        1 19 

Trusts  Covering  tlie  World  Not  Often  Practicable. — With 
an  international  trust  the  difficulty  of  combining  all  the 
world's  producers  in  an  industry  includes  not  only  their 
large  number  and  widely  separated  location,  but  also  an 
equally  wide  separation  of  self-interest.  If  it  were  pos- 
sible to  form  an  international  sugar  trust,  to  include  the 
hundreds  of  beet  sugar  producers  in  Europe,  dissatisfac- 
tion would  arise  with  the  number  of  refineries  and  per- 
centage of  output  assigned  to  one  country,  say  Germany, 
and  by  a  change  of  tariffs  or  bounties  the  government 
might  soon  break  down  the  hmit  set  upon  its  people's 
industry.  Likewise,  a  Swiss  watch  manufacturer,  after 
joining  a  trust,  would  not  long  take  part  in  an  effort  to 
club  down  new  factories  started  by  his  countrymen,  in 
order  to  maintain  a  trust  that  had  bought  him  in  less  for 
his  own  sake  than  for  the  sake  of  foreign  producers,  who 
cared  more  for  his  room  than  his  company.  It  was  dis- 
agreement on  prices,  and  on  division  of  markets,  that 
prevented  in  1899  a  combination  of  the  American  wire 
trust  with  the  German  monopoly  in  the  same  industry.' 

The  Cotton  Thread  Trust  is  International  in  its  scope 
and  highly  successful,  paying  in  1900  dividends  to  the 
amount  of  ^12,000,000.     It  has  been  a  success,  partly 

*Jenks,  48. 

Some  World  Monopolies. — An  international  salt  trust,  lately  incor- 
porated in  New  Jersey,  might  possibly  become  an  effective  monopoly, 
because  the  sources  of  salt,  like  the  sources  of  metals,  are  limited.  After 
1835  there  was  for  a  long  time  a  world  monopoly  in  quicksilver,  owned  by 
the  Rothschilds.  Of  this  there  are  but  a  few  mines,  chiefly  in  Spain  and 
California.  The  Borax  Consolidated  Works,  Limited,  is  now  a  world-wide 
trust  of  the  few  productive  mines  of  borax.  It  is  controlled  by  producers 
in  California.  The  South  African  producers  have  a  practical  monopoly  of 
diamonds.  The  Eastman  Kodak  Company,  formed  in  I90I,  is  an  inter- 
national affair,  being  united  with  national  trusts  in  Europe.  Its  monopoly 
rests  on  patents  and  good  will. 


1 20  TJie  Plahi  Facts  as  to  the  Trusts. 

because  there  were  few  producers  of  the  first  class  any- 
where, but  chiefly  because  several  Scotch  manufacturers 
had  built  up  a  world-wide  reputation,  so  settled  in  the 
favor  of  sewing  people  as  to  have  the  effect  of  a  patent. 
So  long  as  other  thread  makers  could  not  include  in 
their  trademarks  the  name  Coats  or  Clark,  they  were 
unable  to  reach  many  buyers.  These  favorite  manufac- 
turers, by  uniting  in  a  combination  with  fifteen  other  man- 
ufacturers in  different  countries  (practically  all  there  were) 
avoid  determined  competition  from  the  latter,  and  pass 
around  tariff  barriers.  The  Coats  and  Clark  combina- 
tion of  Great  Britain  manufactures  in  the  United  States 
its  favorite  brands  of  thread  for  this  market,  and  owns  a 
controlling  share  in  the  American  thread  combination. 
The  former  is  also  allied  with  spinners  in  various  asso- 
ciated lines,  and  in  different  countries.^ 

If  Thread  Sold  by  the  Trust  is  Really  Better  than  the 
best  an  anti-trust  producer  can  make,  the  trust  is  justly 
entitled  to  its  advantage,  and  no  complaint  can  be  made 
against  it.  If  the  superiority  is  only  in  the  name,  and  in 
its  hold  upon  the  buyer's  favor,  the  complaint  must  then 
be  directed  against  the  buyer's  conservatism.  In  the 
latter  case  a  share  of  the  favor  could  doubtless  be  gained 
by  an  anti-trust  thread  maker  who  raised  his  product  to 
the  highest  quality,  and  proved  to  many  buyers  that  he 
had  done  so.  In  time  his  name  and  trademark  would 
also  stand  for  excellence.^ 

"^  Review  of  Reviews,  Nov.  1900.     Indus.  Com.  XIII. 

^Trademark  Monopolies.  —  It  is  easy  to  perceive  that  the  baking 
powder  trust  might  rest  secure  on  the  popularity  of  the  Royal,  Dr.  Price's, 
and  several  other  brands.  Many  years  would  be  required  to  build  up  an 
equal  reputation  for  equal  goods.  The  capital  of  the  American  Chicle 
Company  was  made  nine  times  the  value  of  tangible  assets,  and  yet  it  has 
paid  regularly  8  per  cent  on  common  stock.     It  owns  the  trademarks  of 


Remedies  for  the  Evils  of  Trust  Monopolies.       121 

Where  the  Intention  is  to  Preserve  a  Protected  Industry 
which,  by  reason  of  low  natural  value  of  its  product,  and 
of  its  having  to  meet  the  wages  of  other  industries,  could 
not  make  a  living  in  America  without  a  protective  duty 
to  add  to  that  value  by  a  levy  on  the  public — the  duty 
cannot  be  removed,  no  matter  how  a  trust  may  monopo- 
lize the  industry  ;  though  the  duty  might  be  placed  below 
the  line  of  extortion  in  selling  price.  With  an  industry 
in  which  the  trust  can  produce  cheaply  enough  to  sell 
abroad,  but  the  independents  cannot,  removal  of  the 
duty  would  drive  out  the  independents.  In  such  a  case 
it  is  only  the  exceptional,  not  the  average,  producer  who 
can  meet  foreign  competition,  and  the  industry  as  a  whole 
is  not  self-supporting.  Whether  or  not  the  independents 
were  taken  into  the  trust  would  not  concern  the  public, 
because  there  would  be  no  chance  of  monopoly,  the 
tariff  removal  having  given  consumers  the  world's  natural 
price,  made  by  competition  among  all  nations  producing. 
But  in  such  an  industry  the  independents  would  be  driven 
out  anyhow  when  weakening  demand  lowered  price,  if 
they  could  not  previously  cheapen  their  production,  and 
if  demand  could  then  be  supplied  in  full  by  the  trust. 
Retaining  the  tariff  to  maintain  independents  in  costly 
production,  deprives  the  public  of  advantage  from  econ- 
omies claimed  by  the  trusts.* 

nearly  all  the  popular  brands  of  chewing  gum.  (Indus.  Cora.  XIII.)  On 
the  other  hand,  such  goods  as  sugar  and  lime  are  easily  monopolized,  be- 
cause not  known  by  the  name  of  the  maker,  who,  in  case  of  a  trademark, 
could  hold  his  trade  if  he  refused  to  join  the  trust. 

1  Perhaps  the  Emptiest  of  all  Serious  Contentions  is  that  the  tariff 
alone,  by  shielding  independents,  saves  us  from  monopoly.  This  was  said 
before  the  Industrial  Commission  by  a  prominent  writer  whose  vigorous 
style  carries  many  readers  over  logical  gulfs.  A  similar  contention  is  that 
of  the  trust  officials  and  protectionists  who  say  that  assured  possession  of  the 
home  market  enables  the  tariff  trusts  to  improve  processes,  cheapen  product, 


122  TJie  Plain  Facts  as  to  the  Trusts, 

Will  the  Tariff  be  Reformed  ? — Those  American  trusts 
whose  monopoly  power  rests  chiefly  upon  the  tariff  have 
until  lately  seemed  secure  in  their  position.  The  preva- 
lent idea  that  a  high  tariff  and  good  times  go  together, 
and  a  low  tariff  and  dull  times,  has  been  further  settled  in 
the  public  mind  by  the  events  of  the  last  twelve  years. 
Whether  a  high  tariff  will  keep  times  good  is  the  next 
thing  to  learn  about  the  matter  from  experience.  This 
question  might  have  been  settled  in  the  negative  by  the 
silver  crisis  of  1893  if  President  Cleveland's  election  had 
not  opportunely  supplied  a  needed  scapegoat  in  tariff 
reduction.  But  just  now  a  union  of  two  forces  bids  fair 
to  take  some  wind  from  the  sails  of  the  tariff  trusts. 
One  force  is  the  awakening  of  consumers  whom  the  trusts 
have  been  oppressing.  The  other  and  stronger  force  is 
the  awakening  of  manufacturers  to  the  facts  that  they 
might  have  cheaper  raw  materials  if  the  tariff  were 
reformed,  and  that  if  they  are  to  continue  selling  goods 
abroad  some  arrangement  must  be  made  by  which  this 
country  can  take  foreign  goods  in  exchange.  No  matter 
how  high  in  quality  our  goods  may  be,  nor  how  low  in 
price,  foreign  countries  will  not  drain  off  their  gold  to 
buy  them.  Tariff  reform  resolutions  by  the  American 
Manufacturers'  Association,  and  the  opinions  of  promi- 
nent Republicans,  are  printed  in  Chapters  XIV  and  XV. 
Resolutions  by  the  people,  expressed  through  their  votes, 
would  bring  about  a  change  very  quickly ;  but  there  will 
be  no  change  until  it  is  clear  that  they  desire  it. 

Monopoly  from  Railroad  Discrimination. — The  trusts 
whose  power  to  exact  exorbitant  profits  is  derived  from 

and  capture  the  world's  trade.  Any  kind  of  a  hold  on  a  buyer's  custom, 
aside  from  giving  best  values,  is  questionable  always,  and  is  clear  reason 
for  suspicion  after  foreign  markets  have  been  entered. 


Remedies  for  the  Evils  of  Trust  Monopolies.        123 

union  with  a  natural  monopoly,  may  be  reached  and 
regulated,  when  the  latter  is  a  railroad,  by  increasing  the 
effectiveness  of  the  Inter-State  Commerce  Law,  and  by 
enacting  state  laws  to  regulate  local  freight  rates.  When 
all  freight  shippers  of  equal  quantities  are  treated  alike, 
and  no  one  united  with  as  a  favorite,  the  railroads  cannot 
be  complained  of  as  fostering  trusts.  The  Standard  Oil 
Company's  monopolistic  control  of  railroads,  often  sup- 
posed to  belong  to  a  period  now  passed  by  more  than  a 
decade,  seems  to  have  been  continued.  "  A  continuous 
line  of  evidence,  extending  to  the  very  month  in  which 
this  is  written  [1897]  shows  that  the  oil  monopoly  has 
always  received  assistance  from  the  railroads."  ^ 

'Bullock,  319.  Discrimination  is  discussed  in  Chapter  IV.,  and  pool- 
ing in  Chapter  VIII. 

Lower  Freights  to  the  Trusts. — It  was  in  1888  that  a  Congressional 
investigation  made  known  the  favors  shown  by  railroads  to  the  four  leading 
meat  packers  of  Chicago.  The  roads  refused  to  haul  private  shippers'  cars 
of  cattle  eastward  from  Chicago,  allowed  the  meat  combination  nearly  ;^200 
a  year  for  each  of  its  cars  used,  and  even  refused  in  some  cases  to  carry 
cattle  for  local  butchers  who  would  not  handle  the  combination's  beef. 
(Bullock,  319.)  Professor  Ely  (Monopolies,  54)  refers  to  the  meat  com- 
bination's freight  advantage  as  still  possessed  in  1899  ;  and  mentions  a  rail- 
road official's  statement  that  year  that  only  three  men  could  ship  wheat, 
meaning  three  of  the  leading  speculators  in  Chicago  He  also  mentions 
the  belief,  apparently  well  founded,  that  to  hold  freight  carrying  into 
Colorado  the  railroads  lower  inward  rates  and  crush  out  manufactur- 
ing when  it  arises  in  that  state.  It  is  believed  by  well  informed  persons 
that  by  means  of  favorable  rates  from  its  main  shipping  points,  more 
favorable  than  are  given  to  competing  shippers  from  other  points,  the 
Standard  Oil  Company  and  the  railroads  are  working  in  virtual  partnership. 
A  similar  advantage  is  believed  to  be  possessed  by  other  trusts.     (Jenks, 

550 

Their  Monopoly  Mainly  Due  to  Railroad  Discrimination. — "In- 
deed, I  think  it  scarcely  too  much  to  say  that  no  alliance  of  capital,  no 
aggregation  of  productive  forces,  would  prove  of  real  or  at  least  of  perma- 
nent disadvantage  if  rigidly  subjected  to  just  and  impartial  charges  for 
public  transportation."  (Chairman  Knapp,  of  the  Inter-State  Commis- 
sion.    Newcomb,  96. ) 


124  TJie  Plam  Facts  as  to  the  Trusts. 

This  Cause  of  Monopoly  Can  Be  Removed.  —  While 
there  is  no  question  as  to  the  efficacy  of  law  to  stop 
quickly  such  an  open  abuse  as  refusing  to  carry  any 
shipper's  freight,  —  underweighing  and  secret  rebates, 
such  as  those  formerly  given  to  the  oil  trust,  and  known 
to  have  been  very  common  lately,^  may  continue  hard  to 
discover,  and  also  the  prompter  service  given  one  ship- 

H.  T.  Newcomb,  chief  of  freight  rates  in  the  Department  of  Agriculture, 
testified  in  1899  he  would  venture  to  assert  that  not  a  rate  on  sugar  from 
a  refining  city  in  the  last  ten  years  had  been  made  without  first  being  sub- 
mitted to  the  trust ;  that  all  through  the  list  of  trusts  the  same  was  true  ; 
and  that  underhanded  opposition  from  trusts  defeated  the  Patterson  bill  of 
1894  to  permit  pooling,  and  to  increase  the  Commission's  powers.  (E. 
W.  Bemis,  The  Forum,  Dec.  1899. ) 

Bad  State  of  Affairs  at  Chicago. — A  thorough  investigation  of  meat 
and  grain  shipments,  held  by  the  Inter-State  Commission  at  Chicago  near 
the  end  of  1901,  showed  that  by  agreement  of  the  Central  Traffic  Associa- 
tion the  products  of  five  or  six  packing  houses  were  allowed  freight  rates 
reduced  by  from  5c.  to  loc.  per  lOO  lbs. ;  and  that  smaller  competitors  at  other 
points  had  mostly  been  driven  out  of  business.  The  Commission  said  in  its 
report  in  January  :  "  That  leading  traffic  officials  should  deliberately  violate 
the  law — in  some  cases  destroy  vouchers  and  manipulate  book-keeping,  and 
pay  hundreds  of  thousands  of  dollars  in  unlawful  rebates  to  a  few  great 
packing  houses — must  be  surprising  and  offensive  to  all  right-minded  per- 
sons. Equally  startling  is  it  that  these  great  packers  should  seemingly  be 
so  eager  to  augmenttheir  gains  in  plain  defiance  of  law."  But  the  palliating 
circumstance  is  the  necessity  of  pools.  The  Commission,  reiterating  its 
previous  recommendation  of  pooling,  says  the  Inter-State  Law  should  be  so 
amended  that  railroad  managers  may  obey  it  without  risk  of  sacrificing  their 
roads.      (See  Chapter  VIII.) 

No  Duty  of  Government  is  More  Important  than  to  see  that  all  ship- 
pers are  treated  equally  in  freight  charges,  said  Chairman  Knapp  in  an 
address  at  New  York,  in  March  1902.  In  emphasizing  the  need  of  reform, 
he  recommended,  if  found  necessary,  greatly  increased  control  of  railroads  by 
the  public,  even  to  the  verge  of  public  ownership.  He  said  :  "If  we 
could  unearth  the  secret  of  these  modern  trusts,  whose  quick  gotten  wealth 
dwarfs  the  riches  of  Solomon,  and  whose  impudent  exactions  put  tyranny 
to  shame,  we  should  find  the  explanation  of  their  menacing  growth  in  the 
systematic  and  heartless  methods  by  which  they  have  evaded  the  common 
burden  of  transportation." 

1  Ely,  259. 


Remedies  for  the  Evils  of  Trust  Monopolies.        125 

per  over  another.  But  with  the  aid  of  complaints  by- 
aggrieved  competitors,  watching  for  evasion,  and  espe- 
cially by  permitting  pools,  which  remove  the  motive, 
discrimination  can  undoubtedly  be  reduced  by  law  to 
very  narrow  limits  —  similar  to  those  in  which  most 
crimes  exist.  The  Inter-State  Law  may  probably  be 
materially  amended  for  the  better  before  Congress  ad- 
journs in  1902.  Two  bills  for  that  purpose  have  been 
introduced.  The  encouraging  progress  that  has  been 
made  toward  correcting  abuses  in  railroad  service  will 
soon  lead,  it  is  to  be  hoped,  to  the  growth  of  a  settled 
body  of  law  sufficient  for  all  needs.  The  increasing 
practice  of  requiring  by  law  detailed  reports  of  railroad 
business  will  assist  legislators  to  determine  what  addi- 
tional laws  or  amendments  would  be  useful.  How 
closely  published  tariffs  are  adhered  to  in  actual  charges 
will  probably  be  tested  eventually  with  systematic  exam- 
ination of  railroad  accounts  by  government  experts.^ 

Reform  in  Directors'  Responsibility.  —  Large  reserve 
power  over  railroads  yet  remains  to  the  government.  This 
power  rests  not  only  upon  the  obviously  public  and 
monopolistic  nature  of  their  service,  but  also  upon  the  fact 
that  they  are  corporations,  creatures  of  the  law ;  that  they 
are  common  carriers,  held  by  law  to  special  responsibil- 
ities for  centuries  ;  and  that  in  taking  land  from  an  unwill- 

^  Publicity  of  Railroad  Accounts. — In  its  report  of  January,  1902, 
the  Inter-State  Commission  recommends  that  Congress  require  the  opening 
of  railroad  books  to  inspection  by  the  Commission  or  its  agents.  It  said  : 
"  Such  publicity  would  be  of  the  greatest  service  in  exposing  and  punish- 
ing illegal  practices,  and  it  is  difficult  to  see  any  good  reason  why  this 
ought  not  to  be  permitted,  provided  proper  restrictions  are  put  upon  the 
use  to  be  made  of  knowledge  thus  obtained."  Professor  Emory  John- 
son, Mr.  Newcomb,  and  President  Spencer  of  the  Southern,  think  com- 
plete publicity  of  accounts  will  be  the  most  effective  remedy  for  discrimi- 
nation.    (Indus.  Com.  IV.) 


126  TJie  Plain  Facts  as  to  the  Trusts. 

ing  seller,  they  make  use,  as  confessedly  public  institu- 
tions, of  the  state's  right  of  eminent  domain.^  The  inviting 
field  for  reform  in  responsibility  of  directors  is  practically 
untouched — not  only  as  to  impartial  railway  service  to 
the  public,  but  as  to  handling  the  money  of  investors  in 
corporations  of  all  kinds.  In  most  parts  of  Europe  pro- 
moters are  by  law  held  responsible  for  inducements  held 
out  to  investors  ;  and  in  England  the  laws  are  backed  by 
a  public  sentiment  that  unsparingly  condemns  attempts 
by  directors  to  acquire  gain  for  themselves  at  the  ex- 
pense of  stockholders.  "  But  in  the  United  States  the 
legal  responsibility  is  inadequate,  and  the  public  senti- 
ment even  more  so.  Perhaps  the  most  serious  among 
all  the  evils  under  which  American  business  suffers  is  the 
lack  of  clear  understanding  as  to  directors'  responsibil- 
ity."^ This  statement  seems  true,  in  view  of  the  enor- 
mous amount  of  stock  watering  and  manipulation  by 
which  smaller  stockholders  have  been  imposed  upon  in 
this  country.^ 

>  Hadley,  Railroads,  41. 

^Hadley,  179. 

'Negligence  by  Directors  of  a  national  bank  at  Niles,  Mich.,  ruined 
by  its  cashier  in  1901,  was  so  gross  that  suits  against  them  for  damages 
were  contemplated  by  stockholders,  who  expected  to  be  required  to  pay  up 
their  stock  a  second  time  to  meet  the  bank's  debts.  Yet  wilful  dishonesty 
is  worse,  which  has  been  practiced  with  impunity  by  directors  of  many 
corporations.  Some  men  of  sad  experience,  not  given  to  exaggeration, 
have  an  idea  that  practically  every  corporation  is  robbed  sooner  or  later  by 
its  own  directors. 

Watering  Stock  May  be  Allowable  when  the  high  market  value  of 
railroad  shares  earning  great  dividends  over  cost  of  service  is  reduced  to 
about  par  value  by  issuing  new  shares  ;  also  when  earnings  have  been  used 
to  improve  the  property.  In  these  cases  there  is  solid  value  back  of  the 
new  stock,  as  with  new  stock  now  sold  by  the  best  railroads  for  cash,  to  be 
used  in  buying  a  branch  line,  or  in  building  terminal  docks.  Dishonest 
stock  watering  consists  chiefly  of  the  issue  of  new  shares  by  directors  to 
themselves  or  associates,  to  get  control,  without  having  adequate  property 


Remedies  for  the  Evils  of  Trust  Monopolies.       127 

Punishment  for  Crime. — Then,  in  addition  to  liability 
of  directors  for  damages,  remains  punishment  for  crime. 
In  Europe  it  is  "  a  crime  for  them  to  divert  the  money 
of  investors  to  their  own  uses  by  lucrative  private  con- 
tracts." ^  It  might  also  be  made  a  crime  in  America,  and 
with  enforceable  laws,  for  railroad  directors  or  agents  to 
build  up  one  shipper  and  pull  down  another  by  discrimi- 
nating rates  and  service — after  inducements  to  discrimi- 
nate are  removed  by  permitting  pooling.  Honesty  here 
may  be  as  important  to  the  public  as  with  bank  officers, 
who  are  closely  restricted  by  criminal  law.  The  people's 
hesitating  attitude  toward  controlling  railroads  by  law 
has  gradually  been  changing  as  they  have  found  out  the 
real  conditions.  These  corporations  are  not  engaged  in 
private  enterprises,  to  be  changed  or  stopped  as  the 
owner  may  choose.  The  railroad  business  exists  because 
we  have  a  great  civilization,  for  which  railroad  service  is 
a  constant  necessity.  It  is  safe  to  predict  that  in  time 
railroad  accounts,  and  without  public  ownership,  will  be 
as  open  to  public  officials  as  government  accounts  now 
are ;  and  that  discriminating  charges  will  seldom  be 
thought  of  as  an  abuse. 

Rights,  Not  Authority. — But  effectiveness  of  public  con- 
trol will  rest  on  the  rights  of  the  case,  not  on  authority. 
The  Massachusetts  Railroad  Commission,  "  in  the  days 
of  its  most  successful  operation,  had  practically  no  power 
except  the  power  to  report  ;  but  its  reports  showed  such 

back  of  the  shares,  or  paying  enough  for  them.  (Hadley,  Railroads,  55. 
Stock  watering  in  trusts  is  discussed  in  Chapter  II.)  The  word  manipula- 
tion above  refers  chiefly  to  deceptive  acts  or  reports  by  which  directors, 
who  alone  know  the  company's  real  condition,  raise  or  lower  market  price 
of  its  shares,  in  order  that  they  themselves  may  sell  or  buy  with  large  gain. 
Others  buying  or  selling  are  then  cheated.  To  know  the  honesty  and 
ability  of  directors  is  important  to  buyers  of  shares. 
Uladley,  179. 


128  TJie  Plain  Facts  as  to  the  Trusts. 

a  clear  understanding  of  the  points  at  issue  that  they 
were  accepted  as  authority  by  impartial  men  on  both 
sides."  ^  Court  decisions  have  a  similar  effect.  Legisla- 
tures and  railroad  commissions,  relying  on  their  author- 
ity, have  too  often  departed  from  strict  right,  and  have 
attempted  regulation  that  could  not  be  enforced.  In  the 
troubles  between  the  railroads  and  the  pubUc  the  right 
principles  are  being  discovered.  These  will  eventually 
be  followed,  to  the  direct  advantage  of  all  concerned. 

A  Monopoly  Formed  by  Buying  up  Sources  of  Supply 
Limited  by  Nature  could  not  be  checked  by  law  at  pres- 
ent if  not  favored  by  the  railroads  nor  by  the  tariff.  If 
some  producers  of  anthracite  coal  in  Pennsylvania  re- 
mained separate  from  the  combination,  and  sold  their 
output  at  the  mine  lower  than  the  combination  would 
sell  there,  the  reasonableness  of  the  freight  rates  charged 
the  buyer  might  be  passed  upon  if  adequate  laws  for 
their  regulation  were  enacted.  But  this  would  be  no 
remedy  for  extortion  in  coal  prices,  if  a  trust  bought  out 
all  the  producers.  If  no  substitute  coal  could  then  be 
found  at  home,  nor  brought  in  from  abroad  by  removal 
of  the  tariff  duty  on  bituminous  coal  (anthracite  is  now 
on  the  free  list),  there  probably  could  be  no  remedy  in 
any  laws  now  available,  nor  in  any  constitutional  power 
yet  put  into  practice.  The  government  cannot  tell  a 
person  what  price  he  shall  charge  for  what  he  owns,  ex- 
cept in  war  emergency,  or  by  appraisal  in  case  of  land 
required  for  public  uses.  Purchase  of  the  mines  by  the 
government  would  probably  be  the  remedy  in  Germany, 
At  present  this  might  not  be  a  safe  departure  from  cus- 
tom by  a  government  as  expensively  administered  as 

iHadley,  177. 


Remedies  for  the  Evils  of  Trust  Monopolies.        129 

ours.     It  might  tend  to  other  ills  worse  than  high  prices 
of  coal. 

Yet  Abuse  of  Private  Ownership  of  Mines  —  waste  of 
nature's  store,  or  imposition  on  the  public  —  could  not 
long  be  permitted  by  the  government.  For  ages  gov- 
ernments have  controlled  such  wealth.  Prussia  in  1865 
reserved  to  the  government  most  of  her  mineral  wealth 
then  unappropriated,  separating  by  law  the  ownership  of 
underground  wealth  from  that  of  the  surface.  The 
earlier  constitutions  of  a  number  of  the  older  American 
states  for  a  long  time  contained  clauses  reserving  to  the 
state  the  ownership  of  all  gold  mines. ^  Our  govern- 
ment's present  attention  to  forestry  and  irrigation,  in 
plans  for  setting  apart  of  woodland  reserves,  and  in  plans 
to  utilize  mountain  streams  in  the  West,  will  probably 
extend  some  day  to  minerals.  The  work  of  the  national 
and  state  geological  surveys,  in  promoting  discovery  of 
minerals,  may  be  extended  to  rational  preservation  of 
those  already  found.  Our  share  of  nature's  treasure  is 
limited,  and  to  avoid  waste  of  it  is  a  duty  to  posterity. 
Government  ownership  and  control  would  probably 
answer  here,  with  private  operation.  But  for  the  pres- 
ent it  is  very  likely  that  with  all  mineral  wealth  now  in 

1  See  Collier,  200,  and  Ely,  last  chapter. 

Government  Ownership  of  Mines. — Professor  Ely,  in  The  Cosmo- 
politan, Aug.  1 901,  mentions  an  Indiana  court  decision  in  which  was 
asserted  the  state's  power  to  prevent  an  owner  from  wasting  natural  gas. 
H.  W.  Macrosty,  in  P.  S.  Quarterly,  1S98,  p.  431,  says  it  seems  likely 
the  British  would  prefer  nationalization  of  mines  to  a  coal  monopoly  pro- 
posed in  1893  by  a  leading  mine  owner,  but  not  agreed  to  by  other  owners. 
In  Germany  a  number  of  important  mines  have  long  been  owned,  and  in 
some  cases  operated,  by  the  state.  In  her  parliament  a  bill  is  now  pend- 
ing that  provides  a  large  appropriation  for  purchase  of  coal  mines,  to  sup- 
ply the  navy,  and  to  protect  the  public  from  private  monopoly.  Russia's 
ownership  and  operation  of  many  mines  of  various  minerals  is  a  survival 
of  the  usual  custom  of  governments  in  former  times. 

9 


130  The  Plain  Facts  as  to  the  Trusts. 

private  hands,  self-interest  of  the  owner  would  lead  to  its 
proper  supply  to  the  public  if  tariff  duties  were  removed, 
and  if  railroads  were  prevented  from  favoring  one  ship- 
per over  others.^ 

The  Print  Paper  Trust,  whose  monopoly  power  was 
gained  through  purchase  of  the  best  American  and  Ca- 

^The  Coal  Monopoly  has  power  to  cause  more  injury  than  perhaps 
any  other  combination.  In  many  Northern  towns  a  majority  of  the  people 
would  pay  ^8  per  ton  or  more  for  hard  coal  before  they  would  change  their 
stoves  and  use  dirty  soft  coal.  Prices  of  anthracite  were  expected  to  be 
higher  this  season  than  for  a  number  of  years.  The  June  price  was  ^6.75 
per  ton  in  Jackson  against  $5-75  last  year,  and  i^S-S"^  i'*  previous  years. 
The  winter  price  was  expected  to  reach  57- 5°,  but  up  to  Februar)'  had  not 
passed  ^7,  the  winter  price  of  last  year.  An  increase  of  1^25,000,000  in 
the  coal  combine's  profits  for  190I  was  reported  as  anticipated — output 
54,000,000  tons  in  1899.  Its  power  to  tax  consumers  might  perhaps  be 
broken  by  wide  introduction  of  cleanest  grades  of  soft  coal,  and  of  stoves 
to  burn  them  best.  Means  of  change  to  soft  coal  are  still  more  needed  if 
present  prices  of  anthracite  are  really  no  higher  than  they  ought  to  be  to 
yield  producers  and  carriers  a  fair  profit. 

By  Reason  of  its  Small  Area,  the  Anthracite  Coal  Field  has  been 
variously  monopolized  by  combination  for  over  fifty  years.  The  leading 
mining  concerns  are  the  railroads — especially  the  Reading,  the  Lehigh, 
and  the  Lackawanna.  Six  other  railroads  enter  the  district.  A  railroad 
owning  mines  would  naturally  treat  itself  better  than  other  shippers.  The 
railroads,  as  mine  operators,  produce  about  three-fourths  of  the  total  out- 
put. Between  40  and  46  per  cent  of  the  price  of  coal  in  New  York  has 
consisted  of  freight  charges — about  three  times  as  high  as  the  freight  paid 
on  soft  coal  carried  much  farther.  (Von  Halle,  35. )  Yet  because  anthra- 
cite is  more  valuable,  it  will  bear  higher  freight  than  bituminous.  A  reason 
given  for  the  higher  freight  is  that  the  different  sizes  of  anthracite  must  be 
kept  separate.  Only  about  5  per  cent  of  the  coal  lands.  Von  Halle  says, 
were  in  independent  hands  in  1895.  One  reason  for  combination  has  been 
the  fact  that  mining  capacity  is  too  large  for  the  demand,  causing  annually 
long  periods  of  idleness.  [The  Atlantic,  lAa.rch,  1901.)  During  1894-97 
the  miners  had  an  average  of  but  150  days  of  work  per  year,  against  a 
previous  average  of  275  days.  A  railroad  mine  manager  told  C.  B.  Spahr 
in  1898  that  there  could  be  no  relief  until  a  third  of  the  people  left  the 
business  ;  but  independent  operators  said  the  market  was  restricted  by  the 
high  freight  charges.  (Spahr,  120.)  In  1900  the  roads  and  mines  were 
further  pooled  or  consolidated  by  J.  P.  Morgan. 


Remedies  for  the  Evils  of  Trust  Monopolies.        1 3 1 

nadian  forests  of  pulp  timber,  and  the  best  water  powers, 
could  be  reached  by  placing  the  tariff  duty  below  the 
line  of  extortion.  The  duty  is  a  half  cent  per  pound  on 
paper  worth  2  ^  to  3  cents — much  higher  on  finer 
paper,  which  is  controlled  by  another  trust.  When 
prices  of  print  paper  rose  in  1 898-99,  partly  from  large 
demand  for  war  news  in  the  daily  papers,  and  largely 
perhaps  from  trust  combination,  German  paper  in  con- 
siderable quantities  was  sold  on  the  Pacific  coast,  in  com- 
petition with  paper  shipped  overland  from  the  lake 
region.  The  print  paper  trust  (International  Paper 
Company)  was  producing  in  the  summer  of  190 1  about 
70  per  cent  of  the  total  American  output.  Substitutes 
for  wood  pulp  may  be  discovered,  as  all  monopolies  may 
be  changed  in  time  by  progress  ;  but  new  inventions 
are  usually  patented,  and  the  meantime  may  be  many 
years. 

Old  and  New  Law  for  Monopolies. — For  those  trust 
monopolies  whose  harmful  power  cannot  be  curbed  by 
tariff  reduction,  nor  by  government  regulation  of  freight 
rates,  some  new  laws  may  be  necessary.  The  old  com- 
mon law  precedents  against  contracts  in  restraint  of  trade 
have  already  been  reenforced  by  many  anti-trust  stat- 
utes. Not  a  few  provisions  of  the  latter  were  evidently 
enacted  in  the  heat  of  politics  rather  than  the  coolness  of 
wisdom,  and  therefore  are  not  to  be  enforced.^     But  it 

^  The  Anti-Trust  Statutes  Too  Stringent.— Most  of  the  anti -trust  laws 
are  too  sweeping  in  their  condemnation  to  be  well  enforced.  The  North 
Carolina  law  of  1889  imposes  a  penalty  of  ^10,000  fine,  and  ten  years' 
imprisonment,  for  any  arrangement  to  raise  or  lower  prices.  The  national 
anti-trust  law  of  1890  makes  the  penalty  $5,000  fine  and  one  year's 
imprisonment.  Though  upheld  by  three  well  known  decisions,  it  has  been 
easily  evaded,  and  few  prosecutions  have  taken  place  under  it.     Public 


132  The  Plam  Facts  as  to  the  Trusts . 

is  thought  by  many  that  application  of  the  common 
law  by  judges,  heartily  supported  by  public  opinion,  will 
prove  a  sufficient  remedy  for  the  evils  of  this  class 
of  monopolies.  It  would  be  fortunate  if  these  latter 
day  needs  could  be  met  from  our  common  law,  the 
greatest  fountain  of  justice  known  in  all  history.  Filling 
the  statute  books  with  dead  letters  against  the  trusts 
adds  to  the  trouble.  The  fewer  set  laws  and  rules  the 
better,  after  the  purpose  of  law  is  accomplished.  As 
will  be  seen  in  Professor  Clark's  suggestions,  given  fur- 
ther on,  the  common  law  may  possibly  be  made  effec- 
tual with  very  little  new  legislation. 

The  Contracts  Forced  on  a  Raw  Material  Producer  not 
to  sell  to  an  anti-trust  manufacturer,  and  on  a  merchant 
not  to  buy  from  him,  would  be  void  in  court  because  in 
restraint  of  trade.  But  this  would  not  help  the  merchant 
if  for  breaking  the  requirement  the  trust  punished  him 
by  having  nothing  further  to  do  with  him.  Perhaps  he 
might  evade  the  punishment  by  making  purchases  from 
the  trust  in  a  roundabout  way.^     The  trust  could  not  be 

opinion  has  not  sanctioned  it  sufficiently  to  require  its  enforcement  by  the 
federal  attorneys,  against  the  legal  technicalities  easily  resorted  to  by  de- 
fendants. By  the  anti-trust  laws  of  Missouri,  Texas,  and  other  states, 
that  of  Texas,  passed  in  1899,  being  most  stringent  of  all,  trusts  are  denied 
the  use  of  the  state  courts  for  collection  of  debts.  But  United  States 
Supreme  Court  decisions  indicate  that  agreements  to  restrain  competition, 
among  any  except  quasi-public  corporations,  such  as  railroads  and  gas  com- 
panies, must  be  unreasonable  to  be  unlawful,  whatever  the  provisions  of 
an  anti  trust  law.  (Collier,  294.)  Such  has  seemed  to  be  the  view  of 
state  courts  also,  in  applying  anti -trust  laws. 

'Rebates  from  Trusts  to  Dealers. — A  trust  holds  a  dealer's  trade  for 
itself,  and  away  from  its  competitors,  by  a  contract  allowing  him  a  rebate 
in  specially  low  prices  when  he  handles  its  goods  exclusively.  This 
arrangement  is  called  the  factor's  agreement.  E.  W.  Bemis,  in  The  Forum 
of  December,  1899,  quotes  a  Chicago  wholesale  grocer  as  writing  that  for 
years  the  Diamond  Match  Company  had  allowed  extra  profit  to  whole- 


Remedies  for  the  Evils  of  Trust  Monopolies.        133 

required  by  law  to  buy  of  the  raw  material  producer ; 
but  possibly  a  corporation,  the  creature  of  the  law, 
might  be  required  to  sell  to  any  one  person,  when  he 
tendered  the  price,  the  same  as  to  others.^  Strong  dis- 
approval from  the  public,  even  to  the  extent  of  individ- 
ually boycotting  where  practicable  the  goods  of  a  trust 
acting  in  these  pernicious  ways,  and  by  encouraging 
competition  against  it,  would  probably  be  an  effective 
and  justifiable  remedy.  These  practices  of  trusts,  though 
frequent  of  late  years  in  this  countiy — notorious  in  the 
case  of  plumbers'  supplies  at  Chicago — and  now  said  to 

salers  handling  its  matches  alone ;  that  the  biscuit  and  sugar  trusts  did  the 
same ;  that  only  one  grocery  house  in  Chicago  did  not  sign ;  that  the 
trusts  did  likewise  to  hold  retailers  who  bought  anti  trust  goods;  and  that 
the  practice  was  common  outside  of  the  grocery  lines. 

Are  Rebates  Illegal? — Von  Halle,  page  77,  says  courts  have  decided 
against  a  pledge  in  advance  not  to  buy  of  others,  but  have  upheld  the 
allowance  of  a  rebate  when  a  dealer  shows  that  during  a  previous  time  he 
has  bought  from  the  trust  alone.  The  amount  of  the  rebate,  with  the  full 
price,  might  indicate  whether  it  was  simply  a  fair  allowance  in  lieu  of 
other  costs  of  increasing  sales,  or  whether  it  was  designed  to  strangle  com- 
petition. A  certain  building  material  trust  sold  its  product  to  a  Michigan 
dealer,  during  a  part  of  1900,  for  just  half  the  regular  price,  to  induce 
him  to  cease  buying  from  an  independent  producer.  It  is  improbable  that 
Under  the  Constitution  this  practice  of  shutting  out  a  competitor  is  beyond 
the  reach  of  new  law,  if  it  is  not  already  illegal.  Giving  by  rebate  a 
lower  price,  in  order  to  sell  a  dealer  all  of  the  large  total  he  handles,  is 
imobjectionable  ;  but  stipulating  that  he  shall  not  buy  additional  quantities 
of  others  is  a  different  thing.  Men  have  a  right  to  combine  to  get  all  the 
trade  for  themselves,  but  their  action  becomes  criminal  conspiracy  when 
the  object  is  not  directly  to  get  for  themselves,  but  to  harm  another.  This 
distinction  has  been  made  repeatedly  by  courts  against  sympathetic  strikes 
and  combinations  to  boycott.  It  was  made  with  emphasis  against  a  trust, 
because  of  its  formidable  power,  where  it  refused  to  sell  to  any  dealer  who 
handled  Dueber  watch  cases.  (F.  J.  Stimson,  Tabor  Law,  199,  244, 
266.) 

'  A  case  in  which  the  Illinois  Supreme  Court  decided  that  the  Associated 
Press  must  sell  its  news  to  any  paper  applying  for  it,  is  mentioned  in  The 
Forum,  Nov.  1900,  page  293. 


134  I'Ji^  Pla'm  Facts  as  to  the  Trusts. 

be  extensively  resorted  to  in  Germany,  may  not  long  be 
continued.^ 

The  Trust  Practice  of  Selling^  Without  Profit  in  a 
Rival's  Territory,  to  drive  him  out  of  business,  might 
possibly  be  stopped  by  a  simple  law  requiring  a  price  to 
be  uniform  to  all  buyers  of  equal  quantities  under  sim- 
ilar conditions  of  purchase.  There  is  a  clause  for  this 
purpose  in  the  anti-trust  statute  of  Texas.  It  would 
seem  that  no  good  reason,  not  against  public  policy, 
could  be  given  for  charging  one  buyer  more  than  another, 
except  perhaps  a  slight  concession  to  buyers  at  a  great 
distance ;  though  in  comparing  the  price  of  oil  from  a 
local  depot  at  one  place  with  the  price  at  another  place, 
it  would  be  necessary  to  consider  differences  in  costs  of 
shipment,  and  in  total  quantity  sold,  with  prices  pre- 
viously charged.  The  anti-trust  producer  aggrieved 
could  generally  furnish  evidence  in  support  of  his  com- 
plaint. If  found  necessary,  examination  by  state  experts 
of  home  companies,  and  of  the  state  agency  accounts  of 
outside  corporations,  as  with  banks  and  insurance  com- 
panies, might  be  provided  for  by  state  law.  In  some 
states  an  outside  corporation  must  become  in  part  a  home 
corporation,  by  being  rechartered.  But  conditions  can- 
not be  imposed  upon  its  inter-state  business.  Through 
agents  it  could  make  sales  and  ship  goods  into  a  state 
even  though  that  state  prohibited  its  own  citizens  from 
engaging  in  the  occupation,  and  if  shut  out  of  the  state 
courts  it  could  sue  in  the  federal  courts.^     Forfeiture  of 

1  The  various  criminal  methods  of  some  trast  monopolies  are  described 
by  H.  D.  Lloyd,  with  citations  of  testimony,  in  his  book  Wealth  Against 
Commonwealtk . 

2  Collier,  293.  State  inspection  of  corporations  must  be  reasonable  and 
just.  In  1S99  a  federal  court  in  Kansas  declared  unconstitutional,  as  being 
virtual  confiscation,  a  state  law  vesting  a  "court  of  visitation"  with  ex- 


Remedies  for  the  Evils  of  Ti'ust  Monopolies.        135 

charter  for  clubbing  is  a  penalty  in  some  of  the  states. 
Federal  law  might  reach  cases  in  which  orders  sent  to 
headquarters  from  one  state  were  filled  at  higher  prices 
than  similar  orders  from  another  state.  If  the  trust  put 
the  low  price  in  effect  all  over  the  country,  the  anti-trust 
producer  would  have  to  stop  business  until  the  trust  be- 
gan to  charge  more,  which  it  would  do  soon,  not  retain- 
ing most  of  its  profits  as  when  its  price  cutting  is  con- 
fined to  one  district,  and  incurring  loss  in  proportion  to 
its  volume  of  business  when  selling  below  cost.^ 

It  Might  be  Better  if  Resort  to  New  Laws  Could  be 
Avoided  in  this  class  of  offenses.  Probably  it  would  be 
unnecessary  if  the  tariff  and  the  railroads  were  thor- 
oughly reformed,  and  if  active  public  opinion  regarded 
all  these  practices  as  disreputable.  The  fact  that  so 
many  independents  advertise  themselves  as  "  not  in  the 
trust,"  shows  that  public  disfavor  is  to  some  extent  a 
remedy  against  monopoly  evils.  But  in  view  of  the 
varying  laws  of  the  many  states,  and  of  New  Jersey's 
and  Delaware's  method  of  enriching  their  state  treasuries 

cessive  power  of  control  over  corporations.  A  number  of  anti-trust  laws 
have  not,  and  others  doubtless  would  not,  bear  the  test  of  review  by  a 
high  court. 

1  Repeated  cuts  in  price  by  the  cane  sugar  trust  at  San  Francisco, 
in  the  fall  of  1901,  to  apply  to  the  region  west  of  the  Missouri,  were 
mentioned  in  the  papers  as  its  "campaign  against  the  beet  sugar  indus- 
try," which,  west  of  the  Missouri,  is  sufficient  to  supply  a  great  part 
of  the  demand.  An  expected  cut  in  price  against  Michigan  beet  sugar 
was  not  made. 

As  explained  above  in  connection  with  rebates,  it  seems  that  to  prohibit 
local  price  cutting,  it  would  only  be  necessary  to  prove  that  the  main  pur- 
pose was  not  to  get  trade,  but  to  injure  competitors.  Such  proof  would 
usually  be  obtainable.  In  testimony  before  the  Industrial  Commission  it 
was  said  by  officials  that  the  tobacco  trust  cuts  price  sometimes  to  introduce 
a  new  brand ;  and  that  the  salt  trust  sells  low  where  there  is  competition, 
making  up  by  higher  prices  elsewhere.  But  an  inquiry  how  low  would 
reveal  the  motive  in  the  latter  case. 


136  The  Plain  Facts  as  to  the  Trusts. 

by  abusing  their  power  of  chartering  corporations — hav- 
ing licensed  trust  promoters,  it  might  be  said,  to  prey 
with  impunity  upon  small  stockholders  and  the  public — 
national  control  of  corporations  doing  business  in  more 
than  one  state  seems  clearly  desirable.  A  law  for  this 
purpose  might  effectually  prevent  unwholesome  practices 
by  trusts.^  The  laxity  of  law  and  opinion  as  to  cor- 
porate management  has  already  been  discussed  in  this 
chapter.  Our  tariff,  patent,  railroad,  and  corporation 
laws  have  offered  many  facilities  to  unscrupulous  mon- 
opolists. 

"  A  Trniform  Corporation  Law  for  the  whole  United 
States  seems  indispensable,  above  all,  for  the  beginning 
of  an  effective  solution  of  the  difficulties."  ..."  No 
authority  has  conceived  better  the  meaning  of  the  cor- 
poration problem  than  Henry  C.  Adams."  He  asks  for 
publicity  of  accounts,  a  control  through  public  commis- 
sions, and  responsibility  of  directors  for  observance  of 
law,^  The  New  York  trust  committee,  in  1897,  recom- 
mended a  constitutional  amendment  giving  Congress 
control  over  industry.  Such  an  amendment  would  pos- 
sibly fail  of  approval  by  the  requisite  three-fourths  of 
the  states,  many  of  which  are  still  jealous  of  their  rights. 
With  general  reform  of  corporation  laws,  an  amendment 
might  not  be  necessary  for  some  federal  control  of  cor- 
porations doing  business  in  more  than  one  state.  Con- 
gress having  now  ample  power  over  inter-state  com- 
merce. The  movement  among  lawyers'  associations  to 
induce  states  to  enact  uniform  laws,  which  has  effected 
good  results  in  some  lines,  might  be  very  useful  in  cor- 
poration laws,  though  it  reached  only  a  few  of  the  larger 

1  Bullock,  The  Atlantic,  June,  1901. 

2  Von  Halle,  I46. 


Remedies  for  the  Evils  of  Trust  Monopolies,        137 

states.  Each  has  considerable  power  to  require  New 
Jersey  corporations,  when  doing  business  through  branch 
offices  within  its  borders,  to  conform  to  the  laws  regulat- 
ing its  own  corporations  after  they  have  begun  business. 
But  other  states  cannot  remove  the  water  from  the 
stocks  of  New  Jersey  corporations,  nor  prevent  her  from 
continuing  to  permit  stock  watering.  Massachusetts, 
which  in  many  lines  comes  first  in  good  laws,  now  per- 
mits no  corporation  to  issue  stock  or  bonds  in  excess  of 
an  officially  approved  valuation  of  assets.  Her  law  has 
been  attended  by  very  hopeful  results,  greatly  lessening 
the  evils  of  secrecy. 

Closer  Control  of  Corporations  is  recommended  by  per- 
haps all  thinkers  on  the  subject  of  trusts,  even  including 
Mr.  John  D.  Rockefeller,  president  of  the  Standard  Oil 
Company.  President  Roosevelt  said  early  in  September 
at  the  Minnesota  fair  :  "  In  the  long  run  we  go  up  or 
down  together.  More  and  more  it  is  evident  that  the 
state,  and  if  necessary  the  nation,  has  got  to  possess  the 
right  of  supervision  and  control  as  regards  the  great  cor- 
porations which  are  its  creatures  ;  particularly  as  regards 
the  great  business  combinations  which  derive  a  portion 
of  their  importance  from  the  existence  of  some  monopo- 
listic tendency,"  Mr,  Roosevelt,  in  his  message  of  1900 
as  Governor  of  New  York,  brought  out  forcibly  the  need 
for  publicity  as  the  first  step  in  control  —  for  exact  infor- 
mation, by  which  to  decide  what  to  do,  "  Then  ,  .  . 
competition  or  public  sentiment  will  give  the  public  the 
benefit  of  lowered  prices,  and  if  not,  the  power  of  taxa- 
tion remains."  In  his  recent  message  as  President  he 
made  similar  recommendations,  and  a  bill  to  carry  them 
into  effect  by  national  law  has  been  introduced  by  Con- 
gressman Littlefield,  of  Maine. 


138  The  Plain  Facts  as  to  the  Trusts. 

Will  the  National  Constitution  be  Amended  ? — Demo- 
crats, who  as  a  rule  oppose  increase  of  federal  power, 
declared  in  their  Massachusetts  platform  of  1901  for  fed- 
eral regulation  of  trusts.  The  lower  house  of  Congress 
in  1900  passed  a  bill,  but  not  by  the  requisite  two-thirds 
vote,  proposing  a  constitutional  amendment  for  giving 
the  national  government  complete  power  to  regulate 
inter-state  corporations.  Most  of  the  important  corpo- 
rations do  business  in  a  number  of  states,  and  hence  can- 
not be  fully  controlled  by  any  one  state  government, 
A  national  department  of  commerce  and  industry,  to 
supervise  corporations,  among  other  functions,  was 
recommended  by  President  McKinley  in  his  annual  mes- 
sage of  1900,  and  also  by  President  Roosevelt  in  1901. 
A  bill  to  establish  such  a  department,  introduced  by 
Senator  Nelson,  of  Minnesota,  has  lately  been  considered 
in  Congress,  and  with  favorable  prospects.  The  Indus- 
trial Commission  has  recommended  the  creation  in  the 
treasury  department  of  a  corporation  bureau,  which  per- 
haps would  answer  better  there  than  in  a  new  depart- 
ment. President  Roosevelt  in  his  message  said  he 
believes  a  very  useful  national  law,  subjecting  inter-state 
corporations  to  publicity,  and  to  some  such  control  as 
Massachusetts  exercises  over  her  own  corporations,  could 
now  be  enacted  by  Congress,  following  experience  with 
the  national  banking  laws  and  the  Inter-State  Commerce 
Law ;  but  that  if  Congress  lacks  the  power,  the  Consti- 
tution should  be  amended  to  confer  it.  By  the  sugar 
trust  decision  of  the  Supreme  Court,  Congress  has  now 
no  power  to  control  monopolies  except  to  prevent  them 
from  directly  restraining  inter-state  commerce,  Consid- 
ering the  increasing  complexity  of  modern  business,  with 
the  dangerous  monopoly  power  to  be  attained  by  trusts 


Remedies  for  the  Evils  of  Trust  Monopolies.        139 

and  railroads,  the  federal  powers  that  proved  sufficient 
for  the  simpler  conditions  of  the  nation's  first  century- 
will  very  probably  require  some  enlargement  to  provide 
government  adequate  to  the  needs  of  the  times.  Giving 
the  states  more  power  to  regulate  manufacturing  and 
trading  corporations  engaged  in  inter-state  commerce, 
has  been  suggested.  This  apparently  would  not  make 
for  the  uniformity  desired.  ^ 

In  England  the  Companies  Act,  as  well  as  free  admis- 
sion of  foreign  goods,  prevents  abuses  by  trusts.  At 
first  promoters  can  resort  to  some  threats  and  force  to 
make  a  producer  join,  and  their  success  in  securing  reck- 
less investment  by  the  public  is  well  known,^  but  after  a 
corporation  has  been  formed,  directors  are  held  to  good 
behavior.  Once  a  year  in  open  meeting  minority  share- 
holders can  question  freely,  and  if  directors  hold  back 
detailed  information  the  stock  falls  at  once  on  the  mar- 

' Admitted  Need  of  National  Control. — "Scores  and  hundreds  of 
students  of  the  trust  problem,  Democrats  as  well  as  Republicans,  have 
admitted  the  necessity  of  an  amendment  giving  Congress  full  power  over 
corporations  engaged  in  inter-state  commerce."  (Collier,  288,  297.)  J. 
B.  Dill,  who  is  credited  with  having  drawn  the  charters  for  the  greatest 
aggregate  of  capital  in  trusts,  says  a  similar  need  to  that  which  called  for 
the  national  banking  law  will  no  doubt  eventually  call  for  centralization  of 
control  of  corporations  under  a  national  law.  Such  was  the  opinion  of  the 
St.  Louis  trust  conference  of  1899,  participated  in  by  governors  or  attorneys- 
general  of  eleven  states. 

*  The  late  Lord  Chief  Justice  Russell,  in  an  address  several  years  ago 
after  the  exploits  of  the  famous  promoter,  Mr.  Hooley,  dwelt  on  the  need 
in  Britain  for  greater  publicity,  and  expressed  a  hope  that  Parliament  would 
soon  take  further  action  to  secure  it,  which  was  done  in  the  Companies 
Act  of  1900  (described  in  International  Year  Book).  He  said  that  from 
1891  to  1897,  in  British  companies  wound  up  compulsorily,  shareholders 
lost  ^100,000,000  and  creditors  $35,000,000.  Shareholders  in  Germany, 
where  corporation  laws  are  strict,  have  been  losing  heavily  of  late  in  fail- 
ing companies.  No  law  can  relieve  investors  from  the  necessity  of  using 
judgment  and  caution.      {Engineering  Afagazine,  ]sin.  1901.) 


140  Tlie  Plain  Facts  as  to  the  Trusts. 

ket.  Clubbing  of  competitors  has  the  same  effect,  show- 
ing dishonest  management.  The  fact  that  common 
stock  is  usually  in  shares  of  ^i  shows  the  dependence 
upon  the  small  investor.  Besides,  books  must  be  ex- 
amined by  chartered  accountants,  who  cannot  be  bribed 
or  influenced,  their  reputation  being  their  valuable  asset. 
When  their  report  is  qualified,  showing  a  questionable 
condition,  the  fall  in  shares  is  serious.  They  inspect 
allowances  for  depreciation,  and  inventory  values,  find- 
ing out  if  dividends  are  really  earned,^ 

^  ReT'ie-u  0/  Rcviaas,  Nov.  I900. 

Meager  Statements  from  Trusts. — It  was  pointed  out  that  the  United 
States  Steel  Corporation's  September  report  gave  profits,  which  invite  in- 
vestment, but  not  gross  business,  which  might  reveal  a  monopolistic  rate 
of  gain.  By  New  Jersey  law,  under  which  nine-tenths  of  the  trusts  are 
formed,  no  confidential  information  need  be  given  in  the  annual  report. 
Bradstreef  s  stated  October  5,  I901,  that  many  industrial  stocks  had 
"declined  sharply,  due  to  a  New  York  anti-trust  decision,  poor  earnings, 
and  lack  of  definite  information  about  their  financial  condition."  The 
Outlook  of  the  next  week,  commenting  on  an  omission  of  previous  extra 
dividends  by  the  Anaconda  and  Amalgamated  copper  companies,  caused 
by  shrinkage  of  electrical  demand  in  Germany,  and  followed  by  a  fall  of 
Anaconda  stock  to  ^34  from  ^54  early  in  the  summer,  and  of  Amalgamated 
to  i?88  from  5 130  earlier — stated  the  following  well  known  truths  about 
trusts:  "The  real  reason  is  the  mystery  in  management.  The  business 
is  masked  ;  there  is  no  open  accounting  to  stockholders.  In  view  of 
the  long  list  of  other  stocks  about  which  regular  detailed  statements  are 
published,  it  is  incredible  that  thinking  men  not  on  the  inside  should  buy 
trust  stocks  when  they  represent  anything  but  aboveboard  investments." 
By  the  end  of  December  the  Amalgamated  trust's  shares  had  fallen  to  $65  ; 
the  price  of  copper,  long  held  at  l6^^c.,  had  fallen  to  I2}4c.  (lie.  later), 
and  the  total  value  of  copper  shares  had  shrunk  by  $200,000,000. 

Dividends  on  Water,  Raised  from  Monopoly  Profits,  Must  Disap- 
pear when  demand  fails  or  anti-trust  product  becomes  large.  Early  in  the 
fall  of  1901  came  a  dismal  report  from  tlie  Republic  Steel  Company,  in 
spite  of  continued  strength  in  the  steel  market ;  also  a  second  collapse  of 
the  rope  trust,  and  a  price  reduction  by  the  linseed  oil  trust  from  82c.  a 
gallon  to  55c.,  which  was  about  the  price  before  the  tnist  gained  control. 
Prices  were  also  reduced  by  the  woolen  goods  trust,  only  to  find  that  the 
independents  did  not  fear  it,  claiming  to  be  able  to  buy  more  cheaply,  as 


Remedies  for  the  Evils  of  Trust  Monopolies.        141 

The  Evils  of  a  Monopoly  Formed  by  Purchasing  Patents 
might  be  remedied,  in  time  at  least,  by  issuing  every 
new  patent  with  the  condition  that  if  the  contrivance 
were  not  put  into  actual  use  the  patent  upon  it  would 
become  void.  This  change  would  stop  the  buying  of 
patents  not  to  use,  but  to  prevent  competitors  from  get- 
ting them.  The  public  good  requires  that  useful  inven- 
tions be  placed  within  reach  of  people  desiring  them. 
Another  practicable  change  in  patents  would  be  a  con- 
dition that  use  of  a  patented  contrivance  must  be  sold 
for  a  reasonable  consideration,  to  be  determined  by  a 
commission.  Probably,  by  reason  of  long  tolerance  of 
absolute  control  of  patents,  though  having  no  right  of 
monopolistic  abuse  might  be  thought  of  as  implied,  the 
courts  and  the  public  would  not  sanction  these  changes 
by  law  in  patents  heretofore  issued.  But  such  changes 
in  new  patents  would  scarcely  make  them  less  desirable 

well  as  to  manufacture  at  less  expense  for  competent  management.  (  The 
Outlook^  October  issues. )  The  New  York  Journal  of  Commerce,  comment- 
ing on  trust  organization  during  September,  said  :  "  The  unfavorable  show- 
ings made  recently  by  many  industrials  have  made  it  difficult  to  secure 
underwriting  for  such  deals,  and  some  will  probably  have  to  be  abandoned 
from  lack  of  support. ' ' 

Recent  Combinations. — Few  combinations  of  sufficient  importance  to 
be  mentioned  generally  in  newspapers  have  been  formed  in  recent  months. 
The  Northern  (5400,000,000  capital)  and  the  Southern  Securities  com- 
panies, to  hold  railroad  stock,  were  organized  in  November,  and  in  December 
a  combination  of  producers  of  photographic  supplies  ($2,500,000  capital). 
Early  in  January,  1902,  the  asphalt  trust  collapsed  from  over-capitalization, 
and  the  crude  rubber  trust  from  having  undertaken  a  greater  task  of  mon- 
opolizing than  it  could  carry  through.  The  latter's  liabilities  were  set  at 
^2, 000, 000  in  excess  of  its  assets.  It  was  announced  from  Philadelphia 
in  November  that  a  steel  trust  of  $50,000,000  was  being  formed  among 
the  plate  mills;  and  from  Grand  Rapids,  Mich.,  in  January,  that  a  gj-p- 
sum  combine,  to  compete  with  the  main  trust,  had  floated  its  stock  of 
$10,000,000.  In  April  two-thirds  of  the  hardware  wholesalers  completed 
a  $120,000,000  combination. 


142  The  Plain  Facts  as  to  the  Trusts. 

to  the  extent  of  weakening  the  inducement  toward  inven- 
tion. They  have  been  recommended  by  different  writers. 
Suggested  Changes  in  Patent  Laws. — Taxation  of  a 
patent,  increasing  each  year,  which  has  been  suggested, 
could  be  apphed  to  previous  as  well  as  to  future  patents  ; 
and  taxation  could  be  used  to  get  back  for  the  public 
excessive  gains  of  other  monopolies  not  to  be  reached 
differently.  An  excellent  suggestion,  apparently,  is  to 
grant  to  the  inventor,  not  absolute  ownership  of  his  con- 
trivance, but  the  right  to  a  royalty,  fixed  by  the  patent, 
and  imposed  on  all  the  makers  of  the  contrivance.^ 
Reservation  of  a  right  by  the  government  to  buy  a 
patent,  and  make  it  free  to  all,  has  been  recommended. 
Shortening  the  time  of  a  patent's  life  below  the  pres- 
ent seventeen  years  would  have  to  be  done  guardedly, 
to  avoid  lessening  the  encouragement  to  inventive  effort. 
To  obtain  the  inventions  that  make  modern  civilization, 
the  people  can  well  afford  to  reward  an  inventor  with  the 
exclusive  right  to  his  invention  for  a  time.  Monopoly 
to  that  extent  is  necessary  to  get  inventions.  So  many 
inventors  spend  labor  and  money  for  naught  that  there 
is  little  ground  for  jealousy  of  the  few  who  succeed. 
Our  patent  laws  are  excellent  in  some  features,  but  do 
not  safeguard  the  interests  of  society  so  well  as  do  those 
of  England  and  Germany.^ 

The  People  Must  First  Want  to  be  Rid  of  Monopoly. — 
If  diligent  application  of  present  laws  proves  insufficient 
to  control  the  trusts,  the  American  people  can  have  addi- 
tional laws  if  they  want  them.  There  is  no  need  for  dis- 
couragement over  the  menace  of  monopoly.  Ample  reme- 

'  Jenks,  221. 
2  Ely,  267. 


Remedies  for  the  Evils  of  Trust  Monopolies.        143 

dies  are  at  hand  without  important  change  of  national 
constitution  or  practice.  The  well  known  acts  by  which 
a  trust  injures  society  can  be  prevented,  whatever  its 
ingenuity  in  evasion  by  change  of  method  or  organiza- 
tion. But  the  people  must  first  want  to  be  rid  of  monop- 
oly, and  then  unite  in  sensible  opinion  on  active  measures 
to  be  taken  against  it.  Legislatures  are  the  people's 
servants,  not  their  teachers — too  much  so.  The  peo- 
ple's opinion  or  desire  must  be  formed  first.  The  millions 
of  profit  in  it  will  keep  monopoly  powerful,  and  induce  it 
to  exercise  its  power  remorselessly,  so  long  as  public 
opinion  is  passive,  or  undecided  what  to  do.  Such  temp- 
tation men  could  not  be  expected  to  resist.  The  division 
and  weakness  of  current  opinion  must  have  pressed  on 
the  mind  of  the  prominent  economist  who  was  quoted 
(perhaps  incorrectly)  as  saying,  in  March,  1901  :  "We 
shall  have  an  emperor  in  Washington  within  twenty-five 
years  unless  we  can  create  a  sentiment  which,  regardless 
of  legislation,  will  regulate  the  trusts." 

Power  of  Public  Opinion. — He  expressed  in  an  exag- 
gerated way  the  need  for  a  cool  and  decided  public  opin- 
ion. This  need,  to  unite  intelligently  on  rational  control 
of  the  trusts,  and  to  avoid  vain  attempts  to  oppose  inev- 
itable forces  of  nature,  was  the  subject  of  Justice  Brewer's 
recent  address  at  the  Yale  Bi-Centennial  Celebration. 
Such  opinion  will  answer  partly  in  place  of  new  legisla- 
tion, giving  maximum  effect  to  the  laws  we  now  have. 
A  prosecuting  attorney  seldom  takes  effective  action 
against  law-breakers — could  not  do  so  if  he  desired — 
unless  he  is  supported  or  driven  by  the  desire  of  a  ma- 
jority of  the  people.  Without  such  support  his  effort 
usually  amounts  to  little.  Decided  opinion  may  also  in- 
fluence trust  policy,  as  stated  before,  through  the  business 


144  1^^^^  Plain  Facts  as  to  the  Trusts. 

need  of  public  favor.  The  self-interest  of  a  trust  in  the 
contentment  and  prosperity  of  all  the  people,  that  they 
may  desire  and  be  able  to  buy  its  wares,  may  not  deeply 
affect  managers  with  whom  to-day  is  the  hay-making  time. 
But  they  will  quickly  change  their  policy  when  public 
disfavor  reaches  the  point  of  doing  without  their  goods, 
to  use  substitutes,  to  patronize  struggling  competitors, 
and  to  unite  on  vigorous  enforcement  of  law.  After  the 
last  three  centuries  of  political  and  industrial  progress  in 
this  Western  Hemisphere,  the  American  people  will  now 
hardly  cease  to  rule. 

Professor  Clark's  Method  for  Control  of  the  Trusts. — 
A  leader  in  devising  means  for  control  of  the  trusts  is 
Professor  John  B.  Clark,  of  Columbia  University,  who 
stands  in  the  front  rank  of  economists.  The  following  is 
a  brief  outline  of  his  plan  and  of  his  reasons,  given  mostly 
in  different  language,  and  with  added  explanations.  His 
suggestions  are  given  at  length  in  the  Political  Science 
Quarterly,  June,  1900,  and  September,  1901  ;  also  in  his 
new  book,  TJie  Cofitrol  of  Trusts,  published  by  The  Mac- 
millan  Company. 

1.  Protect  the  Investor,  through  laws  for  inspection  of  actual  assets  by 
public  officials.  Publicity  arising  from  this  inspection,  applied  to  prices 
and  discounts,  will  also  protect  consumers  from  extortion,  and  competitors 
from  unjust  discrimination  by  means  of  prices  lowered  to  destroy.  Every- 
body needs  this  publicity  except  the  few  promoters  and  managers,  who 
sometimes  are  ready  to  sacrifice  both  their  own  stockholders  and  the  public. 

2.  Permit  Railroad  Pools,  with  state  regulation  of  rates.  This  must 
be  allowed  to  avoid  necessity  of  government  ownership.  If  in  an  attempt 
to  preserve  competition,  pooling  is  not  legally  recognized,  railroads  will 
have  competition,  but  by  their  discrimination  in  favor  of  a  few,  all  other 
business  will  fall  under  monopoly.  It  will  be  easier  to  keep  rates  reason- 
ably low  under  publicly  supervised  pooling,  than  to  stop  discrimination 
under  present  temptations  to  resort  to  it. 

3.  By  Law  Disarm  the  Trust  of  its  Clubs,  and  thus,  by  keeping  open 


Remedies  for  the  Evils  of  Trust  Monopolies.        145 

the  way  to  competition,  get  the  benefit  of  the  trust's  lowering  of  producing 
cost,  and  at  the  same  time  save  the  capable  independent  producer,  whose 
presence,  actual  or  potential,  is  the  force  that  will  prevent  monopoly  extor- 
tion. Protect  the  independent,  and  he  will  protect  us.  Then  the  trust  can 
only  serve,  not  tax.  It  will  have  not  only  the  power  to  serve,  but  the 
motive  also,  the  latter  of  which  is  lacking  when  monopoly  is  strong.  It 
can  now  tax  considerably,  because,  by  brandishing  its  clubs,  the  potential 
competitor  can  be  frightened  away.  Exorbitant  profits  to  the  trust  are  now 
necessary  to  induce  him  to  incur  the  danger  of  the  clubs.  When  his  proof 
of  fitness  to  survive— his  offer  of  best  values — cannot  save  him,  the  time  has 
come  for  the  state  to  interfere.  One  of  its  main  functions  is  to  protect 
property.  Here  the  robbery  is  refined  but  no  less  real,  because  the  com- 
petitor, being  prevented  from  continuing  to  use  his  plant  and  sell  its  prod- 
uct, is  unjustly  deprived  of  its  usefulness.  Keeping  from  him  the  reward 
for  his  attainment  of  cheapest  production  is  putting  a  blight  on  progress, 
for  monopoly  does  not  greatly  encourage  invention.  Potential  competition 
is  now  neutralized  by  the  second  potentiality — that  the  trust  will  use  its 
clubs.  Effectiveness  can  be  restored  to  competition  by  a  third  potentiality, 
namely,  that  the  law  will  disarm. 

4.  The  Clubs  Are  ( i )  giving  a  rebate  to  the  dealer  who  handles  the 
trust  goods  only;  (2)  cutting  price  below  cost  in  the  competitor's  terri- 
tory, while  selling  at  full  price  elsewhere;  (3)  cutting  price  everywhere 
below  cost  on  the  one  grade  or  style  a  competitor  makes. 

5.  Enact  Statutes  Forbidding  These  Three  Practices.  The  second 
and  third  will  be  easy  to  prove  from  arbitrary  changes  in  price.  Require 
that  price  shall  be  uniform  to  buyers  under  similar  conditions,  thus  secur- 
ing the  lowest  price  for  all.  Enforce  the  statutes  vigorously,  but  not  with 
dependence  on  them  alone.  If  legal  technicalities  hinder  their  enforcement, 
use  of  the  clubs  will  prove  the  existence  of  a  monopoly,  which  by  the  com- 
mon law  is  not  to  be  tolerated.  Decisions  by  judges,  under  the  common 
law,  have  already  been  the  most  effective  force  against  trust  evils,  and 
under  this  plan  the  common  law  will  be  the  main  dependence.  The  com- 
mon law  condemnation  of  monopoly  extends  to  its  means  of  action.  A 
statute  to  prohibit  a  trust's  boycott  of  a  dealer  who  sells  anti-trust  goods 
will  follow  established  legal  principles.  So  will  a  statute  requiring  uniform 
prices.  A  person  buying  without  asking  price  can  resist  by  law  a  charge 
of  more  than  is  customary.  Uniformity  therefore  is  already  a  principle 
of  price  regulation.  The  monopoly  of  trusts  has  been  overlooked  so  far 
because  of  their  possibilities  for  good,  in  improving  and  cheapening  the 
people's  supplies.  By  this  method  the  fangs  of  monopoly  will  be  extracted, 
while  the  trust's  power  for  good  will  remain.  A  producer  controlling  total 
supply  is  not  a  monopolist  to  be  feared  if  a  way  is  open  by  which  others 
can  enter  the  business. 


146  TJic  Plain  Facts  as  to  the  Trusts. 

Comments.  —  The  admirable  simplicity  and  evident 
soundness  of  Professor  Clark's  method  of  control  can 
hardly  fail  to  command  general  approval.  It  affects  no 
act  that  is  not  clearly  against  public  policy — not  obviously 
intended  to  support  unlawful  monopoly.  It  attacks  no 
combination,  however  large,  not  even  a  trust  comprising 
all  the  trusts,  that  does  not  clearly  attempt  to  rob 
society.  It  is  in  no  sense  a  demagogic  cry  of  "  Smash 
the  trusts,"  but  leaves  them  free  to  realize  every  possi- 
bility of  advance  in  production  and  distribution  of  goods. 
For  the  minds  of  judges  it  seems  to  divide  unmistakably 
the  beneficial  in  combination  from  the  harmful ;  and  ap- 
parently it  involves  no  insurmountable  difficulties  of 
enforcement.  Documentary  proof  of  the  use  of  the 
first  club  might  usually  be  obtained  by  an  aggrieved 
producer  from  friends  among  the  dealers.  The  readi- 
ness of  potential  competitors  to  build  new  plants  would 
push  the  trust  forward  in  improvement.  And  in  all 
cases  where  combination  did  not  give  positive  advantage 
in  producing  cheaply,  the  trust  would  soon  be  only  one 
among  many  producers.  Very  likely  the  trust  menace 
would  soon  be  forgotten  outside  of  the  realm  of  natural 
monopolies,  to  which  Professor  Clark's  means  of  con- 
trol do  not  fully  apply. 

General  A.  B.  Nettleton,  in  his  excellent  book,  Trusts 
or  Competition,  page  170,  after  giving  many  suggestions 
offered  for  control  of  trusts,  commends  Professor  Clark's 
as  the  best.  Apparently,  he  says,  it  would  apply  to  all 
trusts,  present  and  future,  would  be  acceptable  to  any 
state  desiring  to  regulate,  and  in  other  states  would  reach 
New  Jersey's  95  per  cent  of  all  trusts,  from  taxation  of 
which  she  more  than  pays  all  expenses  of  her  state  gov- 


Remedies  for  the  Evils  of  Trust  Monopolies.        147 

ernment.  Many  think  that  abolishing  freight  discrimi- 
nation and  clubbing  would  not  leave  much  of  the 
monopoly  problem.  "  It  may  be  that  thorough  public 
discussion  of  this  suggestion  will  bring  favorable  action 
sooner  than  Professor  Clark  expects."  Laws  to  prevent 
over-capitalization  would  now  be  of  little  use,  since 
trusts  have  already  been  organized  where  conditions  per- 
mitted. ^ 

1  The  Courts  and  Monopoly. — By  quotations  from  the  important  deci- 
sions of  the  last  few  years,  under  the  common  law  and  anti-trust  statutes, 
General  Nettleton  shows  that  the  highest  courts,  state  and  federal,  are 
practically  unanimous  in  a  readiness  to  apply  the  laws  to  suppress  monopoly. 
The  plea  that  a  trust  changed  to  a  corporation  cannot  conspire,  because  it  is 
but  one,  was  brushed  aside  in  August,  1899,  by  a  St.  Louis  court,  which 
showed  the  monopolistic  purpose  to  be  unchanged.  The  Illinois  Supreme 
Court,  in  October,  1 899,  decided  in  the  Glucose  Case  that  by  the  laws  of 
that  state  protecting  minority  stockholders,  a  corporation  cannot  abdicate 
its  chartered  functions  and  sell  its  property  or  business  in  that  state  to  form 
a  monopoly.  But  purchases  to  monopolize,  in  view  of  the  property  right  to 
sell  at  will,  could  probably  be  made  in  most  cases,  aside  from  the  grounds 
of  this  decision.  Perhaps  no  decision  yet  rendered  against  monopoly  has 
not  left  a  way  open  for  the  trusts  to  continue  practically  unchanged.  A 
pooling  agreement  not  in  the  form  of  a  contract,  but  consisting  of  a  state- 
ment by  each  railroad  company  of  what  it  intended  to  do,  was  upheld  as  law- 
ful by  the  Tennessee  Supreme  Court  in  May,  1899,  following  the  federal 
court's  decision  in  1898  in  the  Joint  Traffic  Case.  (Nettleton,  190.)  The 
New  York  Supreme  Court,  in  1895,  declared  a  milk  trust's  charter  to  be 
forfeited  because  it  was  a  monopoly.  Also,  in  1895,  by  the  Supreme  Court 
of  Illinois,  for  the  same  reason,  the  Chicago  Gas  Trust  was  stopped  from 
exercising  its  chartered  privilege  of  buying  and  holding  the  stock  of  four 
gas  companies  of  Chicago. 

American  Ideas  of  the  SufiSciency  of  Competition. — Some  writers 
think  the  American  courts,  unlike  the  European,  are  too  much  influenced 
by  the  older  ideas  of  competition,  depending  on  its  regulation  by  mere 
agreement,  and  not  sufficiently  recognizing  the  necessity  for  firm  pooling 
contracts  with  railroads  and  other  industries  that  are  naturally  monopolistic, 
or  in  which  competitors  are  few.  Perhaps  the  attitude  of  judges  will  be 
different  when  the  Inter-State  Law  is  amended  to  permit  pooling,  which, 
whether  reasonable  or  not,  is  contrary  to  the  common  law  and  to  the  anti- 
trust statutes.     But  the  agreement  among  courts  as  to  the  unlawfulness  of 


148  The  Plain  Facts  as  to  the  Trusts. 

A  Few  Reforms  in  Trusts  will  Largely  Settle  the  Prob- 
lem.— However,  in  view  of  the  ownership  of  trust  stocks 
by  thousands  of  innocent  purchasers,  and  of  the  well 
managed  trust's  possibilities  of  improving  service  to  the 
people,  it  is  to  be  hoped  that  law  and  opinion  against 
clubbing  will  be  obeyed  voluntarily,  and  that  dissolution 
of  trusts,  by  court  decisions  or  new  statutes,  will  thus 
be  avoided.  The  readiness  of  trusts  to  obey  just  laws 
is  indicated  by  the  charter  provisions  of  the  Southern 
Securities  Company,  that  state  laws  are  to  be  obeyed, 
and  that  any  holder  of  not  less  than  a  hundred  shares 
shall  have  the  right  to  inspect  the  company's  records. 
In  the  World's  Work  for  February,  1902,  commenda- 
tion is  given  to  a  recent  industrial  corporation,  organized 
in  New  Jersey,  whose  charter  provides  that  the  direct- 
ors shall  give  fullest  publicity,  opening  the  books  to 
stockholders,  and    rendering   yearly   a  detailed  report. 

monopoly  makes  success  of  Professor  Clark's  plan  seem  certain,  if  public 
opinion  will  only  require  from  legislatures  a  simple  statute  to  prohibit  club- 
bing— making  monopoly  consist,  not  in  form  of  organization  nor  in  purchase 
of  plants,  but  in  clubbing  competitors  out  of  the  field.  So  far,  despite  the 
many  and  stringent  anti-trust  laws,  practically  nothing  effective  has  been 
done  to  remedy  the  abuses. 

Quotations  from  Highest  Courts. — Evidently  the  general  opinion  of 
judges,  as  of  most  other  people,  was  expressed  by  Justice  Peckham,  of  the 
United  States  Supreme  Court,  when  he  said  in  1897  that  "  trusts  or  com- 
binations .  .  .  have  an  essential  similarity,  and  have  been  induced  by 
motives  of  individual  or  corporate  aggrandizement  as  against  the  public 
interest."  (Nettleton,  184.)  "Monopoly  in  any  kind  of  business  is 
odious  to  our  form  of  government.  .  .  .  All  combination  ...  for  the 
purpose  .  .  .  ought  to  receive  the  condemnation  of  all  courts."  (Supreme 
Court  of  Michigan. )  Possibly,  without  any  more  statutes  at  all,  cases 
might  be  brought  into  court  that  would  involve  enforceable  decisions  dispos- 
ing of  monopoly,  the  common  law  being  re-enforced  everywhere  by  state 
and  federal  anti-trust  statutes.  "  The  principles  of  the  St.  Louis  and  Glu- 
cose decisions,  if  applied  in  a  half  dozen  leading  states,  or  if  affirmed  by  the 
federal  supreme  court,  will,  it  is  held,  disrupt  practically  and  promptly 
nine-tenths  of  the  trusts."     (Nettleton,  173.) 


Remedies  for  the  Evils  of  Trust  Monopolies.       149 

Perhaps,  before  long,  many  corporations  will  voluntarily 
follow  this  policy,  to  gain  public  confidence. 

Clubbing  is  the  Evil  to  be  Removed. — Apart  from  gen- 
eral reform  of  corporation,  tariff,  patent,  and  railroad 
laws,  this  element  of  harmful  monopoly,  clubbing,  seems 
to  be  about  all  that  can  be  directly  prohibited  in  the 
continuing  business  practices  of  trusts  now  in  existence. 
When  clubbing  is  given  up,  under  law  to  prevent  re- 
sort to  it  again,  the  acute  feature  of  the  trust  problem 
will  have  been  settled ;  and  not  by  palliative  regulation 
of  capitalistic  monopoly,  but  by  actual  removal  of  the 
essentially  monopolistic  element.  Combinations  will 
then  separate  of  themselves,  with  the  least  shrinkage  of 
stock  values  and  the  least  disturbance  of  business,  unless 
consolidation  gives  some  productive  advantage  beneficial 
to  the  public. 

Professor  Jenks'  Plan  for  Control  of  Natural  Monop- 
olies.— Professor  J.  W.  Jenks,  of  Cornell  University,  who 
by  special  study  during  the  last  twelve  years,  and  as  eco- 
nomic expert  for  the  Industrial  Commission  since  1898, 
has  become  perhaps  the  highest  authority  on  trusts, — 
proposed  in  1894  a  plan  for  controlling  the  trusts,  espe- 
cially suited  to  those  which  are  naturally  and  permanently 
monopolistic.     The  following  is  a  brief  outline  :  ^ 

1.  Permit  monopoly. 

2.  To  protect  investors  and  consumers,  establish  boards  to  inspect  and 
control  monopolies,  as  the  comptroller  of  the  currency  inspects  banks. 
Give  power  to  call  frequently  for  full  reports,  sworn  to  by  proper  officers. 
Perhaps  at  first  inspection  should  be  confined  to  trusts  monopolizing  neces- 
saries. As  great  a  number  of  people  may  be  affected  by  discrimination  in 
prices  of  oil  and  sugar,  as  in  freight  rates ;  therefore,  what  socialism  there 
may  be  in  such  inspection  of  trusts  would  rest  on  equal  grounds  with  our 
socialistic  control  of  railroads  and  banks. 

1 P,  S.  Quarterly,  September,  1894. 


150  The  Plain  Facts  as  to  the  Trusts. 

3.  Like  the  Inter-State  Commission,  this  board  might  have  power  to 
keep  prices  reasonable,  and  later  perhaps  to  set  a  maximum  price,  as  states 
do  in  passenger  rates.  It  is  to  be  expected  that  a  large  proportion  of  pro- 
duction will  hereafter  be  on  a  monopolistic  basis.  Monopoly  power  for 
evil,  as  well  as  good,  requires  action  for  its  control,  and  quickly.  Trusts 
may  welcome  such  control  in  preference  to  the  more  violent  way  of  the 
anti-trust  statutes.  The  Inter-State  Commerce  Law  has  accomplished  its 
main  purpose.  Before  its  enactment,  according  to  an  experienced  shipper, 
discrimination  favored  four  times  the  freight  and  twenty  times  the  people 
that  are  favored  now  (1894),  and  favors  now  are  largely  within  the  law. 

Permission  of  Monopoly  is  recommended  because  the 
many  anti-trust  laws,  sometimes  enacted  for  temporary 
political  or  even  demagogic  reasons,  were  attempts  to 
abolish  monopoly,  its  good  features  and  all,  by  forbid- 
ding various  kinds  of  agreement  common  in  business  and 
necessary  to  industrial  progress.  By  non-enforcement 
of  these  laws  monopoly  has  been  freely  permitted  up  to 
the  present  time. 

Many  Permanent  Monopolies. — Undoubtedly,  like  rail- 
roads and  street  cars,  many  of  those  industries  connected 
with  mines,  or  with  any  materials  limited  by  nature,  will 
in  time  be  on  a  permanently  monopolistic  basis.  For 
society's  protection,  therefore,  the  state  must  either  own 
and  operate  these  in  a  socialistic  way,  or  must  directly  con- 
trol their  private  ownership.  The  latter  will  be  preferred 
as  heretofore,  because  under  wise  public  regulation  a 
man's  best  effort  for  himself,  and  best  care  for  his  own, 
drawn  out  by  the  right  of  property,  are  also  his  best  ser- 
vice to  society — increasing,  improving,  and  conserving 
its  supplies.  Hence,  as  the  state  must  eventually  con- 
trol these  monopolistic  industries,  it  may  as  well  begin 
quickly,  before  evils  have  become  settled.  That  draw- 
ing on  the  earth's  treasures  has  at  last  revealed  their 
comparative  scarcity,  need  not  give  rise  to  a  gloomy 
view  of  the  future,  but  demands  that  they  be  developed 


Rejuedies  for  the  Evils  of  Trust  Monopolies.        151 

with  rational  care,  with  the  highest  good  of  society  in 
view.  Experience  in  recent  years  has  shown  forces 
tending  to  monopoly  in  many  parts  of  the  industrial 
field.  The  task  of  the  present  is  to  overcome  these  evil 
tendencies  in  social  forces,  as  the  task  of  the  recent  past 
was  to  overcome  physical  nature  by  transportation  and 
productive  machinery.  Undoubtedly,  the  menace  of 
monopoly  can  be  removed  without  great  difficulty  by  a 
union  of  government  agencies — by  the  city  and  state  in 
the  case  of  street  cars  and  gas  works,  and  by  the  state 
and  the  nation  in  the  case  of  railroads  and  other  inter- 
state corporations.  A  need  for  state  bureaus  of  corpora- 
tions, acting  with  a  federal  bureau,  to  secure  publicity 
and  honest  management,  was  generally  acknowledged  at 
the  Chicago  Trust  Conference  of  1899. 

The  First  Steps  to  be  Taken,  however,  are  to  reform 
thoroughly  the  tarifif,  the  railroads,  and  corporations  in 
general.  This  will  involve  no  departure  in  legislation 
— will  be  doing  only  what  disinterested  minds  have  long 
acknowledged  as  necessary.  By  that  time  the  wise 
course  to  pursue  in  controlling  such  monopolies  as  mines 
will  doubtless  appear.  The  reforms  just  mentioned  may 
leave  little  else  to  be  done.  The  establishment  of  the 
proposed  new  department  of  commerce  and  industry 
would  be  a  start  toward  the  government  control  Pro- 
fessor Jenks  has  recommended.  If  it  fell  into  the  hands 
of  able  and  earnest  men,  it  might  contribute  much  to  the 
solution  of  the  problems  of  monopoly.  The  same  pur- 
poses might  be  carried  out  by  the  federal  corporation 
bureau,  recommended  by  the  Industrial  Commission. 

The  Legislation  Proposed  by  the  Industrial  Commission 
of  1898,  in  their  preliminary  report  in  1900  to  Congress, 


152  TJie  Plain  Facts  as  to  the  Trusts. 

after  a  year's  investigation,  comprised  the  following  as 
the  main  features  : 

Certain  evils  of  combinations  should  be  checked  with  laws  by  the  states, 
or  so  far  as  possible  by  Congress  : 

1.  To  require  promoters  to  furnish  investors  with  full  details  as  to  prop- 
erty and  services  for  which  stock  is  issued,  its  amount  and  kind,  etc.;  and 
to  hold  promoters  responsible  for  damages  where  prospectus  fails  to  make 
full  disclosures. 

2.  To  require  a  certificate  of  incorporation,  open  to  inspection  by  any 
investor,  showing  all  powers  granted  to  directors  and  officers. 

3.  To  require  ( I )  a  reasonably  detailed  financial  report  to  stockholders 
at  least  once  a  year,  verified  by  an  auditor;  (2)  information  to  stockhold- 
ers of  the  business  by  granting  them  proper  access  to  records  of  directors' 
meetings  or  otherwise;  (3)  a  list  of  members,  their  addresses  and  hold- 
ings, to  be  provided  members  before  the  annual  meeting. 

4.  To  require  from  the  large  corporations,  or  so-called  trusts,  an  annual 
published  report,  showing  in  reasonable  detiil  assets  and  liabilities,  with 
profit  or  loss,  such  report  and  audit  under  oath  to  be  subject  to  government 
inspection. 

5.  To  give  the  Inter- State  Commission  authority  to  prescribe  the  forms 
of  railroad  accounts,  to  demand  such  detailed  reports  as  it  may  require,  to 
inspect  and  audit  said  accounts,  to  prescribe  classifications  of  freight,  and 
to  make  regulations  for  transportation. 

6.  To  make  decisions  of  the  Inter-State  Commission  operative  at  a  day 
fixed  in  the  decision,  and  until  reversed  by  a  court ;  and  to  make  the 
penalties  fines  against  the  company  and  not  imprisonment  of  its  officials. 

The  report  is  signed  by  seventeen  members  of  the  Industrial  Commis- 
sion, composed  of  senators,  representatives,  capitalists,  and  labor  leaders. 
Printed  in  full  in  Jenks,  235.  A  long  account  of  the  Commission  was  pub- 
lished in  Review  of  Reviews,  December,  1901. 

The  Industrial  Commission's  Final  Recommendations, 
based  on  more  than  three  years  of  investigation,  and  on 
testimony  and  expert  reports  filling  nineteen  volumes, 
were  delivered  to  Congress  February  7,  1902. 

As  to  the  Inter-State  Commerce  Law,  the  Commission 

recommends  new  legislation — 

I.  For  more  stringent  regulation  of  publication  of  rates,  and  requiring 
60  days  notice  of  change,  unless  authorized  by  the  Commission.  Also 
new  law  to  the  effect  — 


Remedies  for  the  Evils  of  Trust  Monopolies.        153 

2.  That  strict  adherence  to  published  rates  be  required,  and  rebates  or 
discrimination  prevented  by  increase  of  penalties. 

3.  That  the  long  and  short  haul  clause  be  strengthened,  and  rigidly 
enforced  unless  the  carrier  is  released  by  the  Commission. 

4.  That  the  Commission  be  given  a  definite  grant  of  power,  never  on 
its  own  initiative  but  on  formal  complaint,  to  pass  on  the  reasonableness  of 
freight  and  passenger  rates,  and  to  declare  them  unreasonable,  as  it  does 
at  present,  but  with  power  (not  now  possessed)  to  prescribe  reasonable 
rates  in  substituti>on. 

5.  That  rates  on  imports  billed  to  the  interior,  lower  than  rates  on  the 
same  kind  of  goods  shipped  from  the  receiving  port,  be  prohibited. 

6.  That  laws  similar  to  those  of  Massachusetts  against  stock  watering, 
be  enacted  by  the  states.     Also  new  law  for 

7.  A  specific  grant  of  power  over  classification,  but  not  to  require  the 
Commission  to  promulgate  a  uniform  classification  for  the  United  States. 

8.  For  a  permanent  corps  of  expert  auditors,  under  the  Commission,  to 
examine  periodically  the  operating  and  financial  accounts  of  all  railroads. 

Commeiits. — These  recommendations  are  substantially 
in  accord  with  the  Cullom  bill,  considered  by  Congress  in 
1900,  except  as  to  uniform  classification.  Following  the 
principle  on  which  was  based  that  experiment  and  com- 
promise known  as  the  Inter-State  Law,  the  plan  here  is  to 
go  deeper  into  artificial  compulsory  regulation,  prescrib- 
ing rates  and  classification,  and  watching  closely  to  en- 
force competition  where  the  natural  result  is  combination. 
This  plan  of  control  is  contrary  to  the  teaching  of  most 
of  the  scientific  thinkers  on  the  subject.  The  other  plan 
is  to  follow  natural  law,  using  legislation  to  supplement 
it,  without  attempting  to  resist  it.  The  main  feature  of 
the  second  plan  is  to  permit  pooling,  which  European 
courts  early  perceived  to  be  based  on  sound  economic 
principles.  Pooling  is  considered  the  only  method  of 
preventing  competition  by  secret  rate  cutting.^  As 
quoted  from  Mr.  Newcomb  in  Chapter  IV.,  whatever  the 
Commission's  powers  to  enforce,  it  can  never  be  able, 

*  W.  A.  Robertson,  The  Forum,  April,  1902. 


154  T^Jic  Plain  Facts  as  to  the  Trusts. 

without  pooling,  to  keep  secret  discrimination  from  all 
of  the  many  thousands  of  rates  involved. 

As  to  Control  of  Trusts,  the  Commission  repeats  its 
preliminary  recommendations  of  1900  for  publicity,  and 
now  recommends 

1.  That  district  attorneys  be  directed  to  institute  proceedings  for  viola- 
tions of  the  federal  anti-trust  laws. 

2.  That  combinations  in  restraint  of  trade  or  production,  which  by  con- 
sensus of  judicial  opinion  are  unlawful,  should  be  so  declared  by  legisla- 
tion uniform  in  all  jurisdictions  and  as  to  all  persons,  and  such  statutes 
should  be  thoroughly  enforced. 

3.  That  stringent  laws  be  enacted  by  Congress  and  state  legislatures, 
making  penal  and  criminal  the  vicious  practice  of  discriminating  between 
customers,  and  cutting  prices  in  one  locality  below  those  which  prevail 
generally,  for  the  purpose  of  destroying  local  competition ;  and  that  such 
laws  give  any  person  damaged  a  right  to  sue  for  and  recover  prescribed 
penalties,  and  that  they  require  officers  to  prosecute  offenders. 

4.  That  to  prevent  over-capitalization  the  states  enact  laws  similar  to 
that  of  Massachusetts ;  and  provide  state  supervision  of  public  service 
corporations,  with  power  to  pass  on  the  public  desirableness  of  new  service 
proposed,  and  to  regulate  rates. 

5.  That  an  annual  franchise  tax  be  imposed  by  Congress  on  the  gross 
inter  state  earnings  of  all  state  corporations,  with  a  low  minimum  rate, 
gradually  increasing  with  earnings. 

6.  That  in  the  treasury  department  a  new  bureau  be  created,  to  register 
all  state  corporations  engaged  in  inter-state  or  foreign  commerce,  to  secure 
reports,  collect  the  franchise  tax,  enforce  penalties,  and  gather  information 
for  use  by  Congress  in  future  legislation. 

7.  That  if  a  department  of  commerce  and  industry  be  established,  one 
of  its  functions  should  be  to  point  out  from  time  to  time  such  economic 
changes  as  suggest  modifications  of  the  tariff;  also  to  point  out  oppor- 
tunities for  reciprocity,  and  evils  in  combinations  that  tariff  changes  will 
correct. 

8.  That  in  view  of  the  practice  by  some  exporters  of  making  lower 
prices  abroad  than  at  home,  Congress  provide  at  once  for  a  commission,  to 
study  and  report  as  soon  as  possible  what  tariff  concessions  may  be  made 
without  endangering  wages  or  employment  at  home,  and  what  advantages 
abroad  may  be  obtained  therefor. 

Comments.  —  Determined  enforcement  of  the  present 
anti-trust  laws  is  to  be  desired,  because  so  far  as  they 


Remedies  for  the  Evils  of  Trust  Monopolies.       1 5  5 

are  unwise  or  unconstitutional,  it  would  clear  away  dead 
letters  by  repeal  and  judicial  decision.  In  the  next  two 
paragraphs  the  Commission  are  in  hearty  accord  with 
Professor  Clark.  Nearly  all  thinkers  will  agree  with  para- 
graph 4 — perhaps  also  with  2  and  3.  But  the  federal 
franchise  tax  is  objected  to  by  some  able  editors,  on  the 
ground  that  no  revenue  is  needed,  that  adoption  of  the 
other  remedies  would  answer  better  without  it,  and  that 
it  would  lay  a  higher  tax  on  big  corporations  because  they 
are  big.  The  latter  would  doubtless  be  proper  if  size 
arose  from  monopoly,  and  might  be  justified  as  an  income 
tax,  yet  it  would  seem  well  to  enforce  the  other  remedies 
first.  They  might  leave  nothing  further  to  be  desired. 
No.  6,  which  is  in  line  with  Professor  Jenks's  proposals, 
and  No.  7,  will  be  generally  concurred  in,  especially  if  the 
new  department  did  its  work  scientifically,  not  politically. 
Is  It  to  Save  the  Tariff  ?  —  But  No.  8  is  sharply  criti- 
cised by  newspapers  advocating  tariff  reform.  They  say 
the  present  Commission  investigated  the  tariff  trusts, 
and  that  passing  the  matter  to  another  seems  to  be  a 
shirking  of  the  duty  to  report  unwelcome  truth.  Ex- 
Congressman  Phillips  of  Pennsylvania,  who  is  said  to 
have  been  changed  by  the  investigation  from  an  extreme 
protectionist  to  a  tariff  reformer,  made  a  minority  report, 
urging  that  as  the  tariff  is  being  used  by  trusts  to  exact 
monopoly  prices  at  home,  the  duty  should  be  removed 
from  metals,  ores,  wood  pulp  and  raw  materials  in  general 
of  restricted  supply.  Old-time  protectionists  would  have 
agreed  with  him.  Doubly  strong  is  their  position  in  the 
present  day  of  monopoly  trusts. 

A  Model  Incorporation  Law,  embodying  the  best  fea- 
tures of  the  English  and  Australian  acts,  and  approved 


156  Tiic  Plain  Facts  as  to  the  Trusts. 

by  many  leading  lawyers,  professors,  business  men,  and 
accountants — was  prepared  by  Professor  Jenks  in  1900, 
to  be  proposed  to  the  New  York  legislature  according  to 
suggestions  in  Governor  Roosevelt's  able  message  of 
that  year.  Such  a  law,  it  is  believed,  if  enacted  in  a 
number  of  the  leading  states,  would  gradually  remove 
many  of  the  evils  of  trusts  and  corporations  in  general. 
It  gives  larger  privileges,  of  especial  value  to  honest 
corporations,  but  balances  them  with  rigid  requirements 
as  to  publicity  of  accounts  and  methods,  directcs' 
responsibility,  etc.^ 

The  Privileges  include  a  right  to  contract,  and  to  acquire  or  sell  any 
kind  of  property,  including  its  own  stock  and  that  of  other  corporations, 
to  the  same  extent  as  a  natural  person.  Judgment  of  directors  to  be  final 
as  to  value  of  property  or  services  for  which  stock  is  issued. 

The  Restrictions  include  the  following  :  l .  A  public  office  open  con- 
stantly, containing  for  any  stockholder's  inspection  a  book  showing  all 
members,  their  holdings,  and  all  transfers.  2.  An  incorporation  certifi- 
cate, to  be  furnished  any  one  for  $1,  showing  all  powers  of  directors,  etc. 
3.  A  four-fifths  vote  of  stockholders  to  change  business  or  slocks,  or  to 
issue  new  stock,  with  purchase  by  the  company  for  cash,  at  an  appraised 
price,  of  the  stock  of  dissenting  members  desiring  to  withdraw.  4.  New 
by-laws  not  valid  unless  copy  is  mailed  to  each  stockholder.  5.  Corrected 
list  of  members  and  their  shares  for  inspection  at  annual  meeting,  and  to 
be  mailed  previously  to  members  requesting  it.  6.  Bonded  auditors  chosen 
at  annual  meeting  by  ballot,  to  protect  stockholders  against  directors.  7. 
Statement  to  any  stockholder,  at  a  charge  of  not  over  ten  cents  per  loo 
words,  of  all  salaries,  contracts,  and  agreements.  8.  Increase  of  salaries 
to  be  ratified  at  annual  meeting.  9.  Directors  signing  false  statement  to 
be  jointly  and  severally  liable  for  company's  debts.  10.  If  annual  meet- 
ing not  held  at  proper  time,  salaries  to  cease  until  it  is  held,  and  paying 
deduction  later  to  be  unlawful.  II.  At  annual  meeting  any  stockholder  to 
have  a  right  to  demand  the  record  of  directors'  meetings.  1 2.  Any  share 
of  stock  to  be  collectible  at  par  in  cash  unless  a  contract  on  file  in  the 
ofiice  for  public  inspection  discloses  in  detail  its  consideration  (cash,  prop- 
erty, or  services).  13.  Every  share  not  issued  for  cash  to  have  stamped 
on  its  face,  notice  of  above  contract,  and  the  total  of  shares  so  issued.  14. 
Annual  report  to  show  stock  issued  in  previous  two  years,  and  whether  for 

1  Printed  in  full  in  Jenks,  beginning  at  page  244. 


Remedies  for  the  Evils  of  Trust  Monopolies.        157 

cash  or  otherwise.  15.  Officials  not  filing  sworn  reports,  etc.,  to  be  in- 
eligible for  one  year  to  hold  office.  16.  Every  prospectus  or  advertise- 
ment for  selling  shares  or  bonds  to  give  a  long  list  of  detailed  information, 
comprising  no  proper  business  secrets  but  all  else  an  investor  could  ask, 
including  bonuses  and  promoters'  fees.  Promoters  not  complying  with  the 
law  to  be  liable  for  damages  to  party  aggrieved.  Laws  fully  as  strict  with 
promoters  are  now  in  force  in  Victoria  and  other  countries.  17.  Balance 
sheet  to  be  mailed  before  annual  meeting  to  each  stockholder  (and  included 
in  report),  giving  full  details  as  to  stock  issued  and  for  what,  debts,  assets, 
earnings,  depreciation,  and  bad  accounts.  18.  Auditors  to  be  liable  to 
injured  party  in  case  of  neglect  or  false  certifying. 

The  Publicity  Provided  For  is  deemed  to  be  sufficient 
to  obviate  the  necessity  of  subjecting  all  corporation 
accounts  to  frequent  inspection  by  state  officials,  which 
practice  might  put  sound  concerns  in  risk  of  blackmail. 
Aside  from  protecting  investors,  one  purpose  of  the 
publicity  is  to  inform  employees,  that  they  may  not  make 
demands  and  strike,  as  they  often  do,  when  declining 
business  dooms  them  to  failure.  Other  purposes  are  to 
inform  the  state,  for  its  functions  of  taxation  and  regula- 
tion ;  and  to  inform  would-be  competitors  of  high  profits, 
that  they  may  know  when  to  enter  the  business.  The 
publicity  required  is  for  stockholders,  who  in  large  cor- 
porations are  so  numerous  as  to  place  it  before  the  gen- 
eral public.  Small  corporations  composed  of  a  few 
stockholders  might  keep  their  business  secret  as  at  pres- 
ent. Such  corporations  seldom  engage  in  practices 
harmful  to  the  public.  Additional  personal  liability  for 
directors,  who,  unlike  other  stockholders,  know  and  con- 
trol the  business,  has  been  generally  recommended,  to 
a  measure  similar  to  that  of  trustees  of  savings  banks. 
Corporations,  however  large,  do  not  harmfully  centralize 
control  of  wealth  where  by  means  of  publicity  and  proper 
laws  the  small  stockholder  can  exert  an  influence  in  pro- 
portion to  his  holdings.     The  increase  of  names  on  rail- 


158  The  Plain  Facts  as  to  the  Trusts. 

road  stock  books,  showing  wider  distribution  of  stocks, 
might  well  extend  to  all  sound  corporations  under  laws 
securing  honest  management.* 

Finally,  There  is  No  Lack  of  Remedies,  it  will  be  seen, 
many  of  them  tried  and  proved  in  other  countries ;  nor 
in  agreement  and  desire,  among  the  best  thinkers,  to  take 
the  action  required  by  conditions.  Bringing  our  cor- 
porations to  the  publicity  and  honesty  prevailing  in 
Europe,  reforming  the  tariff,  prohibiting  clubbing,  and 
exercising  watchfulness  over  naturally  monopolistic  re- 
sources and  services  —  in  these  and  other  lines,  legisla- 
tion safe  and  easy  of  enactment  seems  to  be  within  reach. 
Public  evils  spend  themselves  now  and  then,  and  subside 
from  notice  for  a  time  ;  but  their  causes  usually  continue, 
and  soon,  if  not  removed,  the  evils  lessen  materially  the 
sum  of  human  well  being.  Allowing  the  trusts  to  go 
ahead  unchecked,  until  their  excesses  were  removed  by 
the  laws  of  nature,  would  be  little  more  excusable  than 
to  abandon  a  community  to  be  thus  relieved  from  a  seri- 
ous contagious  disease.  It  seems  that  these  monopoly 
problems  have  been  considered  long  enough,  and  that 
the  time  for  a  start  in  action  of  a  new  and  effective  kind 
will  be  in   the  earliest  sessions  of  Congress   and  of  the 

1  New  York's  corporation  law  was  slightly  amended  in  April,  I901, 
making  directors  liable  for  paying  from  capital  dividends  not  earned,  and 
adopting  partially  the  suggestions  in  the  proposed  law  above  as  to  the  stock 
book  for  members'  inspection,  and  as  to  consideration  for  issue  of  stock. 
Some  such  changes  were  made  in  1900  in  the  law  of  New  Jersey.  Gov- 
ernor Nash  of  Ohio  recently  sent  in  a  strong  message  on  controlling  and 
taxing  corporations.  The  main  purpose  of  the  New  York  legislation  of 
1901,  however,  was  not  additional  restriction,  but  greater  liberality,  to  at- 
tract incorporated  capital.  Liability  of  stockholders  and  directors  was 
lessened,  the  tax  was  reduced,  and  the  power  to  borrow  was  enlarged. 

The  French  and  German  corporation  laws  are  now  similar  to  that  pro- 
posed by  Professor  Jenks,  but  in  Germany  a  demand  has  arisen  for  greater 
publicity  with  trusts.      (  The  Natio7t,  Jan.  2,  1902. ) 


Remedies  for  the  Evils  of  Trust  Monopolies.       159 

state  legislatures.  Even  a  little  legislation  of  Jthe  right 
kind  would  be  of  great  benefit,  especially  in  corporation 
laws  similar  to  that  proposed  for  New  York.  The  part 
of  each  voter  in  the  movement  is  carefully  to  inform  him- 
self, and  to  add  his  individual  ideas  to  the  great  current 
of  public  opinion.    Only  through  it  does  legislation  come.* 

•  Prospects  Are  Unpromising  Just  Now  for  the  above  reforms.  Con- 
gress this  session,  to  a  larger  extent  perhaps  than  usual,  has  been  occu- 
pied, not  with  legislation  likely  to  result  in  (or  even  designed  for)  benefit  to 
the  people  as  a  whole,  but  with  measures  urged  in  each  case  by  a  class 
expecting  to  reap  personal  profits,  or  urged  by  politicians  hoping  thus  to 
hold  or  gain  favor  among  voters.  One  of  these  measures  is  the  bill  to  pay 
millions  annually  in  subsidies  to  shipping,  despite  the  facts  that  our  ship- 
yards are  now  vastly  more  prosperous  than  at  any  other  time  since  the 
Civil  War,  and  that  we  have  enterprise  and  capital  without  limit  to  establish 
new  lines  of  ships  over  every  route  offering  natural  profits.  Another  meas- 
ure is  the  bill  to  tax  oleomargarine  out  of  existence,  that  poor  consumers 
may  not  choose  to  use  this  cheap  and  wholesome  article,  but  must  buy 
butter  or  nothing.  Another  movement  is  the  effort  to  retain  every 
fraction  of  tariff  advantage,  without  regard  to  consequences  in  Cuba, 
or  among  unprotected  producers  and  consumers  at  home.  And  labor 
unions,  whatever  their  resolutions  on  the  wrongs  of  the  common  peo- 
ple, follow  the  custom  of  seeking  class  benefit  at  public  expense,  de- 
manding eight-hour  and  anti-contract  laws  by  which  public  labor  must 
cost  more  than  it  naturally  sells  for.  In  all  this  class  clamor  there  is 
scant  attention  anywhere  to  the  only  means  for  actual  removal  of 
wrongs  complained  of — to  reform  of  railroad,  tariff,  and  corporation 
laws  on  lines  suggested  by  the  Industrial  Commission,  and  by  Presi- 
dents, Governors,  and  economists.  Widespread  complaint  of  the  raise 
of  prices  by  the  beef  trust  includes  little  demand  for  a  real  remedy — for 
revision  of  the  Inter-State  Law  so  as  to  abolish  discrimination,  and  for  free 
admission  of  cattle  and  meat  from  Canada  and  South  America.  In  view  of 
the  ease  with  which  capital  prevails  in  a  contest  for  special  favors,  it  is  not 
very  surprising  that  Mr.  W.  J.  Ghent,  in  his  notable  article  in  The  Inde- 
pendent of  April  3,  concludes  that  now,  as  in  ancient  democracies,  the 
people  will  let  their  liberties  slip  away,  and  that  the  power  of  wealth  will 
be  established  in  a  modem  feudalism,  marked  by  benevolence  to  the  classes 
ruled,  because  they  can  thus  be  exploited  most  effectively.  But  are  not  a 
series  of  unblushing  demands  ar.d  practices  necessary  to  awaken  the  great 
honest  public,  and  to  force  it  into  permanent  reforms  ?  That  an  irresistible 
movement  for  tariff  revision  is  about  to  set  in,  is  admitted  by  some  who  are 
are  trying  hardest  to  stave  it  off.     With  it  may  come  other  pressing  reforms. 


CHAPTER  VII. 

THE    PROPER    AND    NECESSARY    MEASURE    OF    MONOPOLY. 

Monopoly  From  Giving  Best  Values.  —  Any  trust  that 
continues  to  exist  as  a  monopoly  solely  because  no  com- 
petitor can  offer  goods  equally  desirable,  cannot  be  wisely 
attacked,  either  by  law  or  by  public  disfavor.  So  long 
as  it  makes  no  effort  to  weaken  or  drive  out  competitors, 
but  goes  ahead  surpassing  them  all  in  serving  the  public, 
it  is  a  benefactor,  and  will  not  only  deserve  but  will 
receive  substantial  reward.  It  is  doubtful  if  there  ever 
has  been  such  a  trust — one  that  long  remained  in  power 
without  help  from  a  patent,  a  taiiff,  or  a  natural  mon- 
opoly. If  the  Standard  Oil  Company  has  entirely  given 
up  evil  practices,  it  may  now  be  such  a  trust  in  part,  so 
far  as  not  made  a  natural  monopoly  by  its  pipe  lines  and 
terminals,  unless  present  merit  is  lessened  by  bad  methods 
in  past  attainment.  If  it  surpasses  competitors  by  means 
of  valuable  processes,  it  cannot  be  censured  for  keeping 
them  secret,  as  any  business  man  would  do.^ 

1  Has  Monopoly  Caused  Improvement  ? — But  the  Standard's  improve- 
ments in  refining  and  distributing  oil  are  no  argument  for  trusts.  Greater 
improvements  and  cheapening  have  taken  place  in  other  lines  of  business 
not  combined  into  trusts.  Perhaps  there  is  no  business  not  improved  in 
some  way.  "Charges  for  refining  oil  and  sugar  have  decreased  very 
slightly  since  the  formation  of  these  monopolies."  Considering  the  value 
of  many  new  by-products,  it  is  thought  the  charge  for  refining  oil,  over  cost 
of  the  crude,  may  have  increased  slightly  since  1882.  There  are  probably 
no  trusts  that  have  not  raised  or  kept  up  prices  (their  main  purpose)  when 
it  paid  them  to  do  so,  though  the  most  successful  have  allayed  opposition 
and  earned  profit  by  making  improvements.  Comparison  of  the  usual  5  to 
8  per  cent  gains  of  ordinary  business  with  the  Standard's  48  per  cent  on  a 

160 


Proper  atid  Necessary  Measure  of  Monopoly.       i6 1 

Large  Concerns  Desired  Where  They  Serve  the  People 
Best. — The  steel  trust  likewise  would  be  a  public  benefac- 
tor if  its  vast  profits,  554,954,8/ 1  for  the  first  six  months, 
were  derived  from  production  made  economical  by  com- 
bination, with  cheaper  and  better  products  than  could  be 
shipped  in  from  abroad  if  there  were  no  tariff  duty. 
Massing  capital  into  billion-dollar  corporations  could 
scarcely  be  legislated  against  if  it  were  necessary  to  at- 
tain for  consumers  goods  of  best  quality  and  lowest 
price.  So  far  as  combination  into  larger  concerns  gives 
each  person  a  better  living,  society  wants  combination 
for  the  same  reason  that  it  wants  invention.  It  could 
hardly  be  wise  to  attempt  by  legislation  to  keep  an  in- 
dustry divided  among  small  producers,  despite  the  good 
effect  on  character,  if  economic  law  in  cheapness  and  gain 
drew  them  together. 

Have  the  Trusts  Brought  Benefits? — But  apparently 
proof  of  public  benefit  from  great  massing  of  capital  is 
not  to  be  found  in  the  steel  trust.  Its  sales  abroad, 
against  world  competition,  it  seems  to  be  undenied,  have 

capital  considered  somewhat  watered,  gives  an  idea  as  to  whether  mon- 
opoly does  not  keep  up  prices.  A  large  margin  of  profit  over  cost  of  raw 
sugar  has  been  taken  by  the  sugar  trust  from  the  start  when  not  engaged  in 
fighting  competition.  It  has  paid  12  per  cent  on  common  stock  deemed  to 
consist  largely  of  water.  "  Practically  invariably  "  trusts  have  raised  or 
kept  up  prices.     (Jenks,  N.  A.  Review,  June,  1901.) 

Two  Changes  May  Not  be  Cause  and  Effect. — Similar  to  the  argu- 
ment of  attributing  improvements  to  trust  combination  is  the  argument  of 
attributing  American  prosperity  to  the  tariff.  During  the  last  half  century 
England  has  prospered  almost  as  much  under  free  trade,  with  outflow  in- 
stead of  inflow  of  people  and  capital,  without  any  new  land  to  settle,  and 
with  nothing  to  compare  with  the  variety  of  American  resources.  In  the 
last  twenty  years  she  has  probably  surpassed  America  in  steadiness  and 
wide  distribution  of  increase  of  wages,  and  increase  of  favorable  conditions 
for  labor.  Our  tariffmay  have  been  good  for  certain  purposes,  but  few  would 
attempt  to  prove  that  without  it  our  growth  would  not  have  taken  place. 

II 


1 62  The  Plain  Facts  as  to  the  Trusts. 

been  regularly  made  at  far  lower  prices  than  its  sales  at 
home.  If  that  is  the  case,  a  portion  of  its  profits  are  a  tax 
it  levies  on  home  consumers  by  means  of  the  tariff  Ger- 
man trusts  have  been  doing  this  extensively,  charging  high 
prices  at  home  and  selling  their  surplus  abroad  for  what 
it  will  bring.  This  is  believed  to  be  a  common  practice 
of  American  monopolistic  trusts,  in  harmony  with  their 
principle  of  serving  where  they  must,  but  of  taxing  where 
they  can.  Clear  proof  of  public  benefit  from  trust  com- 
bination does  not  yet  appear.  Combination  for  the  sake 
of  cheaper  and  better  products,  as  explained  before, 
would  scarcely  have  taken  the  monopolistic  plan  of  buy- 
ing out  a  majority  of  the  competitors,  and  then  of  doub- 
ling or  trebling  capital  with  watered  stock. 

Enlarging  Plant  to  Cheapen  Product. — It  is  not  likely 
that  the  leading  plants  are  operated  more  successfully 
now  than  before  being  united  into  trusts,  nor  with 
greater  improvement  than  they  would  have  made  if  con- 
tinued alone.  They  had  then  the  best  machinery  made, 
and  ample  capital  in  other  forms.  Manufacturing  is  a 
business  of  decreasing  cost  and  increasing  profit,  as  the 
scale  of  operation  enlarges,  up  to  the  point  at  which  all 
the  equipment  is  of  the  best  kind,  and  sufficient  in  size 
to  employ  the  best  methods,  with  a  force  of  men  that 
includes  every  variety  of  talent  required.  Above  this 
point  of  maximum  efficiency,  enlargement  will  usually  be 
a  disadvantage.* 

How  Large  a  Business  Must  be  to  Reach  the  Point  of 
Lowest  Cost,  enabling  it  to  sell  at  lowest  prices  to  con- 

'  Greatly  Lowered  Cost  for  Added  Business  is  the  rule  with  rail- 
roads and  municipal  service  companies,  strengthening  their  other  means 
of  monopoly.  A  passenger  train  as  long  and  as  crowded  as  an  en- 
gine can  pull  costs  little  more  to  operate  than  a  shorter  train  partly  empty. 


Proper  and  Necessary  Measure  of  Monopoly.       163 

sumers,  depends  upon  its  class  and  field.  Local  enter- 
prises in  small  cities,  and  to  some  extent  in  larger,  such 
as  those  of  carpenters,  painters,  plumbers,  tailors,  bak- 
ers, and  printers,  require  but  httle  capital,  from  ^500  to 
;^  1 0,000,  to  render  the  best  service  at  lowest  cost.  With 
them  personal  attention  to  work  is  more  important  than 
large  capital  and  extensive  business.  Such  is  the  case, 
even  in  very  large  cities,  with  various  kinds  of  repairing, 
and  especially  with  artistic  or  difficult  work  requiring 
individual  skill.  The  case  is  usually  different  in  the 
production  of  an  article  sold  by  dealers  over  a  wide  ter- 
ritory. But  here,  to  reach  the  lowest  cost  and  best 
quality  of  product,  the  gigantic  establishment  is  neces- 
sary in  few  lines.  Perhaps  nine-tenths  of  the  factories 
of  the  country  are  not  large,  employing  each  from  20  to 
500  people,  yet  they  make  good  products  and  are  run 
on  a  solid  basis,  meeting  all  competition  that  arises.  The 
average  number  of  employees  for  each  of  5,572  factories 
inspected  in  Michigan  in  1901  was  34. 

Did  Enlargement  of  Factories  Cause  Progress  ?  —  All 
industrial  history,  says  Professor  Gunton,*  shows  that 
equally  in  all  industries  production  cheapens,  prices  fall, 
and  wages  rise,  in  proportion  as  large  enterprises  sup- 
plant small  ones — as  concentration  of  capital  increases. 
In  cotton  manufacturing  he  says  the  increase  of  average 
capital  per  factory  from  1^50,702  in  1831  to  ^275,503  in 
1880  caused  the  fall  of  60  per  cent  in  price  of  cloth, 
and  the  rise  of  80  per  cent  in  wages,  of  nearly  400  per 
cent  in  product  per  laborer,  and  of  100  per  cent  in 
per  capita  consumption  of  cloth.  If  this  were  true  the 
801  mills  in  183 1  would  have  been  consolidated  into 
fewer  than  756  (his  number)  by  1880 — doubtless  by  the 

•Quoted  by  Collier,  142. 


164  The  Plain  Facts  as  to  the  Trusts. 

present  time  into  less  than  a  score,  controlled  by  one 
trust ;  and  consolidation  of  all  industry  under  a  social- 
istic state  would  soon  come  to  pass.  But  no  such 
mighty  cause  as  that  can  be  claimed  for  the  trusts,  instead 
of  the  gains  of  monopoly  and  stock  watering.  Not  the 
larger  the  factory,  the  cheaper  the  product  and  the 
greater  the  gain.  It  is  product-cheapening  machinery, 
with  cheapened  transportation,  that  has  lowered  prices. 
Wheat  has  fallen  in  price  about  one-half  since  1870,  but 
farms  tend  to  grow  smaller,  and  this  in  the  best  wheat 
sections.  Sometimes  in  a  single  year  scores  of  new 
cotton  factories,  mostly  small,  are  started  in  the  South. 
They  must  meet  the  prices  of  the  larger,  and  to  live 
must  produce  about  as  cheaply,  for  the  profits  of  many 
of  the  larger  average  low.'  Factories  employing  three 
or  four  men  make  and  sell  brooms  against  any  compe- 
tition. Many  a  concern  having  less  than  fifty  employees 
thrives  in  making  underwear  with  sewing  machines.  To 
have  the  machinery  for  doing  the  particular  work  cheap- 
est is  the  essential  condition,  whether  employees  num- 
ber one  or  one  thousand. 

Increase  of  "Wealth  Brings  Larger  Factories.  —  What- 
ever the  industry  suitable  for  a  large  capital,  even  sell- 
ing papers  on  trains, — large  plant,  with  those  desiring  to 
use  large  capital,  is  necessary  to  make  a  sufficient  aggre- 
gate of  profit.  The  increase  of  a  producer's  wealth  is 
usually  invested  in  his  own  business,  often  no  doubt,  as 
in  the  case  of  a  village  expressman  adding  more  wagons, 
until  additions  of  capital  bring  a  lower  rate  of  profit. 
In  most    industries  continued  enlargement  shows  that 

'  Labor  Bulletin  34,  page  478,  gives  the  number  of  cotton  mills  as  801 
in  183I,  1005  in  1880,  and  905  in  1890.  Mr.  Edmonds,  of  the  Baltimore 
Manufacturers'  Record,  recently  stated  the  number  in  the  South  as  now 
being  668 ;   113  were  established  there  during  1899. 


Proper  and  Necessary  Measure  of  Mo7iopoly.      165 

the  owner  had  savings  to  invest,  not  that  he  realized 
through  enlargement  a  higher  rate  of  profit  than  his 
competitor  on  a  smaller  scale.  Only  where  small  scale 
competitors  disappear  is  there  certain  proof  of  decided 
advantage  to  the  large  factory — proof  that  enlargement 
caused  the  ability  to  produce  cheapest  and  best. 

And  Where  Largest  Capital  is  Required  to  produce  at 
lowest  cost,  the  great  plants  were  built  before  the  trusts 
came.*  The  Carnegie  Steel  Company,  with  its  twenty 
millions  of  annual  profits,  and  unlimited  credit  to  bor- 
row, had  no  need  to  combine  with  smaller  concerns  in 
order  to  raise  more  capital  or  to  hire  experts.  It  does 
not  readily  appear,  aside  from  stock  watering,  why  any 
local  company  making  profits  should  desire  a  wider  mar- 
ket for  its  stock  or  bonds  through  consolidation.  The 
American  works  that  surpass  the  world  in  locomotives 
were  a  dozen  separate  concerns  up  to  June,  1901.  So 
are  the  shipyards  yet,  now  fast  taking  a  place  with  the 
first ;  and  independent  still  are  scores  of  leading  manu- 
facturers of  machinery,  and  not  all  of  them  large,  who 
sell  against  any  competition  in  the  world. 

If  Consolidation  into  Trusts  Has  Increased  Exports  of 
manufactures,  it  must  have  been  because  monopoly 
prices  at  home  enabled  them  to  cut  prices  abroad.  As 
already  stated,  it  is  unlikely  that  consolidation  since  1898 
made  strong  concerns  more  efficient  than  they  were  be- 
fore, or  caused  them  to  improve  faster.  It  is  offering 
best  values  that  makes  foreign  trade,  as  well  as  trade  at 
home,  though  in  either  case  some  capital  may  be  well 
spent  in  opening  agencies  to   let  the  value  be  known. 

*A  report  of  the  United  States  Geological  Survey  in  1901  says:  "The 
day  is  rapidly  approaching  when  no  Portland  cement  factories  will  be  profit- 
able except  those  producing  several  thousand  barrels  per  day." 


1 66  The  Plain  Facts  as  to  the  Trusts. 

Where  superior  value  is  clear,  as  with  harvesters  and 
sewing  machines,  exports  were  large  long  ago,  before 
trusts  appeared.  It  would  undoubtedly  have  been  the 
same  with  oil  if  no  oil  trust  had  been  formed.  Profit 
in  exporting  it  would  have  attracted  the  requisite  capital 
and  skill  for  introducing  it  in  foreign  lands.  Use  of  oil 
would  have  become  universal  there,  as  it  had  become 
universal  here  before  the  time  of  the  Standard.  With 
its  monopolistic  opportunity  to  collect  millions  annually 
in  freight  rebates,  and  in  extra  price  to  home  consumers, 
it  had  little  inducement  to  make  the  most  of  the  foreign 
field.  Can  it  be  doubted  that  four  or  more  strong  com- 
panies, devoted  to  legitimate  business,  not  to  fighting  for 
monopoly,  would  have  served  the  world  better  in  sup- 
plying oil? 

Why  Have  Exports  Consisted  of  Trust  Products  ? — The 
bulk  of  our  largely  increased  exports  of  manufactures 
have  lately  consisted  of  trust-made  goods,  because  trusts 
have  been  formed  in  the  steel  and  other  industries  easily 
monopolized,  whose  products,  limited  by  nature  and  pro- 
tected by  patents,  happened  to  be  demanded  quickly  and 
largely  in  many  lands.  These  products  would  have  been 
demanded  as  widely  if  there  had  been  no  trusts.  Until 
lately  the  bulk  of  exports  consisted  of  farm  products, 
furthest  removed  from  combination.  Our  steel  products 
were  taken  by  foreign  demand  just  as  soon  as  they 
became  the  cheapest  and  most  desirable,  and  in  1898, 
before  the  time  of  the  steel  trusts.  Aside  from  cutting 
prices  abroad  below  the  home  level,  organization  into  a 
trust  can  extend  foreign  trade  in  no  case  except  in  that 
of  an  industry  having  insufficient  capital  and  skill  to  pro- 
duce most  cheaply,  and  to  push  foreign  sales.  Such  an 
industry  trust  promoters  seldom  choose.     They  naturally 


Proper  afid  Necessary  Measure  of  Monopoly.       1 6"/ 

prefer  those  industries  having  already  a  monopolistic 
excellence  that  will  float  watered  stock.  And  for  the 
much-talked-of,  and  properly  desired,  supremacy  in  the 
world's  markets,  beyond  a  temporary  picking  up  of  bar- 
gains by  foreigners,  more  will  be  required  than  giving 
the  best  values.  Some  arrangement  will  have  to  be 
made,  through  tariff  reform,  for  taking  the  goods  with 
which  alone  foreigners  can  continue  to  pay. 

Buying  Materials  in  Large  Quantities. — The  supposed 
advantages  of  buying  raw  materials  in  large  quantities, 
often  mentioned  to  justify  trusts,  will  not  bear  examina- 
tion. This  advantage  is  small  with  staple  materials 
widely  dealt  in,  of  solid  value  all  the  year  round.  On 
one  carload  the  price  is  usually  as  low  as  on  two  car- 
loads or  more.  With  salt  and  lime  the  wholesale  price 
from  the  producing  trusts  is  now  not  one  cent  a  barrel 
lower  on  an  order  for  10,000  barrels  ;  though  the  higher 
price  of  the  wholesaler  is  put  a  little  lower  on  a  large 
order,  because  his  expense  of  making  sale  may  be  no 
greater  than  with  a  small  order.  On  anthracite  coal  the 
trust  price  for  one  carload  is  the  lowest ;  but  on  bitumi- 
nous coal,  sold  by  many  producers,  the  price  to  retailers 
falls  as  quantity  bought  increases,  up  to  about  100  car- 
loads. On  flour  from  the  large  mills  of  Minneapolis  a 
small  order  is  often  cheapest.  Their  price  card  to  whole- 
salers frequently  states  that  not  over  five  carloads  will  be 
sold  to  one  purchaser  at  the  price  given.  Unsold  stock 
is  then  small.  Unlike  lime,  the  price  of  flour  at  the 
mills  changes  often  with  wheat.  When  unsold  flour 
happens  to  accumulate,  or  grinding  capacity  is  not  fully 
utilized,  a  very  large  order  is  taken  at  a  price  some- 
what lower. 


1 68  The  Plain  Facts  as  to  the  Trusts. 

Slight  Variations  in  Price   as   Quantity  Changes   are 

doubtless  the  rule  with  lumber,  brick,  iron — materials 
in  general,  and  consumable  necessaries.  The  purchase 
required  to  secure  the  lowest  rate  does  not  consist  of 
many  cars.  Too  large  a  purchase  tends  to  make  a 
scarcity  and  raise  price, ^  In  1899  and  1901  an  extra 
price  was  frequently  paid  to  have  a  large  order  of  crude 
iron  products  filled  promptly.  Very  large  orders  are 
often  divided,  for  the  sake  of  quicker  delivery,  and  to 
iavoid  raising  price.  In  time  of  weak  demand,  price  of 
materials,  on  a  large  order,  is  lowered  considerably  ;  but 
only  until  unsold  stocks  are  reduced  to  correspond  with 
the  slack  demand,  or  until  mill  capacity  is  again  fully 
utilized. 

In  Dull  Times,  When  Mills  Are  Idle,  a  Heavy  Cut  in 
Price  of  materials  would  be  made  to  obtain  a  very  large 
order  ;  but  the  purchaser  then  earns  the  reduction  by 
taking  the  risks  of  ownership.  Besides  insurance,  stor- 
age, and  loss  of  interest  on  the  money  paid,  his  material, 
whether  held  idle  or  manufactured  into  unsold  goods, 
may  fall  still  lower  in  value.  That  is  the  case  where 
entire  output  of  a  mill  is  bought  by  the  year  or  season. 
Where  value  is  certain  to  the  buyer,  it  is  usually  certain 
to  the  producing  seller  also,  and  he  advances  his  prices 
accordingly.  By  risks  still  greater  the  owner  of  a  depart- 
ment store  earns  his  heavy  discount  on  large  purchases 
of  summer  novelties,  which  may  not  all  be  sold  before 
the  short  season  ends,  and  the  next  season  may  be  out 
of  fashion.  Price  is  lowered  materially,  as  a  rule,  on 
large  orders  for  finished  goods,  because  on  account  of  a 

'  "  At  Fall  River  the  print  cloth  market  received  an  impetus  from  several 
liberal  orders,  regulars  advancing  to  3  cents."  [Dun's  Review,  Sept.  14, 
1901.) 


Proper  ajid  Necessary  Measiire  of  Monopoly.      169 

multiplicity  of  styles  and  qualities,  with  frequent  change, 
the  expense  of  selling  such  goods  is  heavy.  Generally, 
the  more  staple  an  article,  like  sugar  or  coffee,  the  lower 
the  profit,  the  less  the  risk  of  selling,  and  the  smaller  the 
gain  on  a  large  purchase. 

The  Expense  of  Selling  Finished  Goods,  which  is  a 
branch  of  work  almost  as  necessary  as  making  them, 
can  never  be  eliminated  by  any  degree  of  consolidation. 
The  bulk  of  the  country's  products  will  continue  to  be 
sold  as  heretofore,  through  wholesalers  and  retailers, 
reached  by  traveling  salesmen.  If  these  classes  are 
leeches,  living  on  industry  without  rendering  a  return, 
why  were  they  not  dispensed  with  long  ago  ?  If  a  trust 
did  without  their  services,  their  work  would  still  be  done 
nevertheless,  and  others  would  be  employed  in  some  way 
to  do  it.  Several  of  the  leading  manufacturers  of  bug- 
gies do  not  reach  retailers  through  jobbers  ;  but  they  do 
the  jobber's  work  by  maintaining  central  agencies  of 
their  own. 

To  Save  the  Retailer's  Profit,  a  small  proportion  of  the 
people  will  take  the  risk  and  trouble  of  sending  off  to 
buy  many  goods  from  a  direct  selling  manufacturer  or 
a  department  store.  Of  course,  consumers  might  thus 
get  their  supplies  for  less,  and  if  the  large  class  of  mid- 
dle men  could  be  released  to  engage  in  making  things, 
supplies  for  all  would  be  much  cheaper  and  more  plenti- 
ful. But  the  merchant's  work  the  consumers  would 
then  have  to  do  themselves,  and  bear  his  risks.  They 
would  rather  pay  the  merchant  for  doing  it,  for  the  same 
reason  that  they  pay  for  their  laundry  work,  which  each 
person  might  do  for  himself  and  save  money.  It  is  by 
hiring  a  manager  and  buying  a  stock,  at  their  own  risk 
and  trouble,  and  by  partly  giving  up  exercise  of  choice 


I/O  The  Plain  Facts  as  to  the  Trusts. 

as  to  where  to  deal,  that  buyers  obtain  a  saving  through 
a  cooperative  store.  In  America  the  energy  of  buyers 
has  been  too  valuable  to  them,  and  the  merchant's  work 
too  well  done,  to  admit  of  large  growth  of  cooperation. 

Selling  to  Dealers  is  a  Necessary  Work  likewise.  The 
;$5  to  ;^io  a  day  expense  of  maintaining  each  traveling 
salesman  is  a  heavy  tax  on  manufacturers  and  whole- 
salers, and  the  consumer  pays  this,  with  all  other  costs 
of  getting  the  goods  to  him.  If  this  expensive  system 
of  selling  to  dealers  could  be  given  up,  prices  to  con- 
sumers might  be  much  lower.  But  it  is  unavoidable. 
Manufacturers  of  new  articles  not  well  known  would  get 
few  orders  if  they  waited  for  them  to  come  by  mail ;  and 
their  sending  out  of  salesmen  makes  the  same  method 
necessary  for  other  manufacturers  who  would  not  fall 
behind.  Few  consumable  commodities  are  so  settled  in 
public  favor  that  active  effort,  through  advertising  and 
salesmen,  would  not  increase  profit  from  sales  beyond 
the  expense  thus  incurred. 

Is  Advertising  a  Waste  ?  —  Fewer  goods  would  be 
sold,  and  consumers  would  have  less  enjoyment,  if  wants 
were  not  continually  awakened  by  tempting  advertising 
— especially  by  expensive  pictures  in  magazines,  and  by 
store  window  displays  costing  hundreds  of  dollars  to  • 
arrange.  Professor  Jenks  was  surely  mistaken  when  he 
wrote  of  advertising  as  a  waste.  It  is  made  necessary 
by  nature,  the  same  as  sleep,  which  might  be  said  to 
waste  a  third  of  the  time  of  mankind.  Effort  to  sell 
overcomes  ignorance  and  inertia,  as  sleep  removes  fatigue. 
In  the  one  case  the  cost  to  a  person  is  in  time ;  in  the 
other  case  it  is  in  added  price.  Either  sleep  or  effort  to 
sell  is  harmful  if  carried  too  far.  The  benefit  to  society 
from  advertising,  and  from  other  effort  to  sell,  is  the 


Proper  and  Necessary  Measure  of  Monopoly.      171 

enjoyment  and  elevating  effect  of  varied  consumption. 
The  $250  paid  by  Colgate  or  Pears  for  a  page  in  a  maga- 
zine may  not  cause  society  to  use  more  soap,  but  it  cer- 
tainly induces  enough  people  to  use  better  soap,  or  such 
expense  would  be  stopped.  For  the  cost  of  advertising, 
experienced  men  know  almost  exactly  what  results  they 
get  in  return.  If  there  is  a  gain  to  all  advertisers  of 
fine  soap,  it  cannot  be  that  one  attracts  customers  from 
another  making  an  article  equally  good.  If  pushing  of 
sales  could  be  avoided  with  a  popular  article,  the  way 
would  seem  easy  in  taking  advertising  expense  from  its 
selling  price.  Both  dealers  and  consumers  would  soon 
notice  the  bargain.  To  one  producer  doing  that  alone, 
the  fact  that  others  still  had  the  advertising  expense 
might  be  an  advantage.  That  price  is  not  thus  reduced 
by  the  amount  of  advertising  expense,  or  cost  of  premi- 
ums given,  seems  to  show  that  advertising  is  necessary. 
Taste  for  Better  Things  Needs  to  be  Encouraged,  and 
by  more  forces  than  the  example  of  others.  People 
could  get  along  with  poorer  and  fewer  supplies,  down  to 
the  tramp  who  wrote  in  a  soap  testimonial  that  he  had 
used  no  other  for  two  years.  Even  with  an  article  that 
was  decidedly  the  best  of  its  kind,  advertising  would 
cause  more  people  to  know  that  fact.  A  trust  making 
every  pound  of  its  article  produced  in  the  world  might 
still  advertise  and  push  sales  until  every  person  con- 
sumed all  that  would  benefit  him.  Life  insurance  is 
acknowledged  to  be  of  great  value,  but  how  much  of  it 
would  be  sold,  and  among  the  most  intelligent  people, 
without  agents  and  advertising  ?  The  case  is  the  same 
with  sewing  machines  and  pianos,  whose  sales  are  prob- 
ably trebled  by  means  of  easy  payments.  Many  a  per- 
son is  led  to  subscribe  for  a  magazine  by  an  advertise- 


1/2  Tlic  Plain  Facts  as  to  the  Trusts. 

ment  that  simply  reminds  him  of  excellence  he  already 
knows.  Though  no  doubt  payments  for  advertising  and 
for  traveling  men  are  often  injudicious,  wasteful,  and 
badly  overdone,  like  other  kinds  of  human  activity, 
sometimes  raising  the  cost  of  selling  above  the  cost  of 
making, — still  they  cannot  be  abolished  in  a  society  for 
which  a  large  and  ever  changing  variety  of  supplies  is 
made.  This  expense  of  selling  new  things  is  a  part  of 
civilization,  and  especially  of  progress.  It  would  be 
less  noticeable  among  barbarians,  or  among  people 
introducing  nothing  new. 

Selling  Expense  Small  with  Staple  Materials. —  And 
where  selling  expenses  could  be  largely  dispensed  with 
by  a  trust,  they  are  already  unimportant,  as  indicated 
before.  Such  is  the  case  with  raw  materials  and  partly 
manufactured  forms,  in  whose  realm  trusts  chiefly  flour- 
ish, partly  because  here  they  can  monopolize  nature's 
supply.  Manufacturers  come  after  materials  themselves, 
for  they  are  necessary  for  carrying  on  business.  The 
few  producers  of  sugar,  and  of  meat  products  sold  by 
grocers,  keep  merchandise  brokers  in  cities  having  whole- 
sale grocers,  but  sometimes  less  to  solicit  orders,  for  they 
come  unasked,  than  to  carry  out  telegraphic  changes  of 
prices.  In  time  of  good  demand,  a  saw  mill  owner  fa- 
vorably known  to  wholesalers  and  exporters  need  hardly 
spend  a  postage  stamp  to  sell  his  product.  Trusts  are 
less  common  with  finished  goods  for  consumers,  apart 
from  food  necessaries,  not  only  because  producers  are 
numerous  and  factories  easy  to  start,  with  the  limits  of 
nature  further  removed,  but  also  because  people  stop 
buying,  and  use  their  old  clothes  or  buggies,  if  prices  are 
much  advanced.  This  is  why  the  present  high  prices  of 
materials  fall  so  heavily  on  some  manufacturers,  who  can 


Proper  and  Necessary  Measure  of  Monopoly.      i  yt^ 

not  raise  their  selling  price  accordingly.  With  some  fin- 
ished goods,  profits  to  makers  are  said  to  be  nearly  as 
low  as  they  were  during  the  recent  hard  times,  though 
collections  are  better. 

The  Gains  and  the  Losses  of  Consolidation. — It  is  doubt- 
ful if  a  great  trust,  in  a  term  of  several  years,  could  save 
enough  from  buying  materials  in  large  quantities,  and 
from  reduction  of  selling  expense  through  elimination  of 
competition,  to  balance  the  increase  of  expense  necessi- 
tated by  consolidation.  That  a  trust  owning  ten  factories 
can  produce  and  sell  cheaper  than  the  owner  of  one  is  by 
no  means  an  axiom,  unless  each  is  trying  to  sell  all  over 
the  country,  which  is  not  usually  the  case  with  the  owner 
of  a  single  factory.  His  are  customers  near  by,  saving 
freight,  no  less  than  are  theirs ;  and  he  too  can  locate 
near  his  source  of  raw  materials.  Nobody  buys  from  a 
distant  factory,  in  preference  to  a  near  one,  unless  it  pays 
him  to  do  so,  nor  does  the  distant  producer,  under  a 
legitimate  policy,  give  up  much  profit  to  equalize  freight. 
There  is  probably  little  overlapping  effort  to  sell  that 
is  seriously  wasteful.  Milkmen  have  their  routes,  which 
are  bought  and  sold.  Where  several  traverse  the  same 
street  they  accommodate  customers  by  coming  at  differ- 
ent hours  of  the  day.  Chicago  traveling  men  do  not  go 
far  into  territory  that  Cincinnati  houses  offering  equal 
values  can  supply  to  decided  advantage  in  freight.  Men 
traveling  over  a  wide  territory  call  very  seldom.  Part  of 
traveling  men's  expenses  are  for  board  they  would  bear 
at  home,  and  keeping  them  on  the  road,  moving  as  fast 
as  they  do,  is  not  very  different  from  keeping  clerks  in  a 
store,  who  often  spend  time  without  making  sales,  and 
sometimes  induce  a  customer  to  buy  what  is  not  best  for 
him.     The  trust's  alleged  advantage  would  seem  more 


1 74  77?^  Plain  Facts  as  to  the  Trusts. 

substantial  if  it  produced  from  one  or  a  few  great  new 
plants,  and  not  from  old  and  scattered  plants  kept  run- 
ning for  the  sake  of  their  good  will. 

Consolidation  to  Get  the  Use  of  Patents,  secret  proc- 
esses, or  business  ability  possessed  by  others,  is  not 
essential  to  a  concern  that  is  making  money  without 
them ;  while  the  combination  has  no  need  for  weak  con- 
cerns, doomed  to  disappear  soon  by  failure.  Except 
with  raw  materials  necessary  to  other  producers,  a  trust 
would  lose  trade  by  closing  its  selling  agencies  to  save 
expense.  The  owner  of  a  single  factory  seldom  makes 
enough  varieties  or  sizes  to  incur  loss  of  time  in  changing 
from  one  to  another.  If  he  offers  good  values  he  needs 
no  help  to  withhold  credit  from  irresponsible  buyers,  with 
whom  he  need  not  deal  at  all. 

Various  Expenses  of  Largeness. — As  a  rule,  the  larger 
and  richer  the  concern,  the  higher  the  salaries,  the 
more  numerous  the  officials  and  assistants,  the  smaller 
the  amount  of  work  done  by  each,  the  greater  the  need 
for  spotters  and  auditors,  and  the  more  elaborate  the 
requisite  system  of  accounts.  Moreover,  men  realizing 
great  profits  from  a  monopoly  will  not  usually  continue 
long  to  value  economy  as  they  would  if  it  were  neces- 
sary for  success.  And  persons  selling  to  a  wealthy  trust, 
or  working  for  it  as  contractors,  can  generally  contrive 
to  get  good  prices  for  the  exacting  service  demanded. 
In  getting  the  most  from  capital,  labor,  and  business 
opportunity,  and  thus  holding  cost  of  product  to  the 
lowest  point,  it  is  unlikely  that  in  the  long  run  a  great 
trust,  in  a  business  not  naturally  monopolistic,  could 
compete  fairly  with  a  smaller  corporation,  under  the  eye 
of  managing  owners,  and  possessing  all  the  capital  and 
capability  required.     The  fatal  objection  to  the  trust's 


Proper  and  Necessary  Measure  of  Monopoly.      1 7  5 

whole  claim  of  advantages  is  the  question,  Why  then  does 
it  not,  with  lower  prices  and  better  goods,  take  the  busi- 
ness from  other  producers  without  clubbing  them  down  ?' 

» Some  Real  Advantages  of  Combination. — But  if  the  trust  maintained 
monopoly  by  really  giving  best  values,  without  trying  to  stifle  competition, 
there  could  be  no  complaint.  Taking  aw^ay  other  means  of  monopoly  would 
give  competitors  a  chance  when  growing  wealth  caused  the  trust  to  relax 
effort  to  save.  Rivalry  in  some  cases  among  different  plants  in  a  trust,  to 
excel  in  efficiency,  is  now  said  to  surpass  competition  in  cheapening  product. 
Managers'  views  are  interchanged,  while  achievement  by  each  is  accu- 
rately compared,  and  is  encouraged  by  visiting  inspectors.  So  far  as  this 
is  continued  without  monopoly  prices,  the  public  may  be  benefited.  Saving 
by  dispensing  with  the  highest  paid  men  in  each  plant  united,  and  putting 
all  plants  under  a  few  experts,  has  been  done  by  some  trusts.  This  is 
similar  to  railroad  consolidation.  It  was  recently  reported  that  the  Penn- 
sylvania would  soon  make  the  Baltimore  and  Ohio  a  part  of  its  own  system, 
like  the  Panhandle,  and  thus  dispense  with  many  general  officers  and  solicit- 
ing agents.  Such  saving  would  be  a  public  benefit  if  used  to  improve  ser- 
vice and  lower  rates.  But  this  way  of  saving  has  already  ruined  some  of 
the  manufacturing  trusts  in  England.  The  high  salaried  men  left  out 
started  new  concerns  of  their  own,  and  by  personal  care  were  soon  able  to 
compete  with  the  trust  and  break  its  monopoly.  ( Public  Opinion,  Sept. 
19,  1901.) 

The  Trusts  and  Wages. — Perhaps  the  trusts  will  not  try  to  gain  by 
reducing  wages  without  good  reason  in  slack  demand.  Their  able  mana- 
gers know  that  with  labor  as  with  machinery  the  best  is  usually  the  cheapest 
— that  with  both  of  them  too  great  economy  may  become  the  worst  extrava- 
gance. The  necessity  for  willing  service,  and  the  odium  aroused  by  reduc- 
ing wages  of  organized  labor,  would  probably  lead  a  monopoly  to  make  its 
gains  from  high  prices,  not  from  low  wages.  This  many  trusts  have  done 
since  1898.  Other  industries  have  done  the  same,  both  wages  and  prices 
rising  from  natural  demand,  coupled  with  union  pressure,  voluntary  ad- 
vances in  wages  usually  being  rare  everywhere,  though  more  common  per- 
haps than  ever  before  at  Christmas  1901  among  railroads  and  other  large 
employers.  But  with  monopoly  power  trusts  have  doubtless  raised  prices 
highest,  increasing  profits  largely.  Possibly  the  rise  of  35  per  cent  in  wages 
of  tin-plate  workers  {Labor  Bulletin  No.  29,  page  738)  was  due  to  the 
trust's  monopoly,  in  that  it  had  a  chance  to  make  great  profits,  and  could 
well  afford  to  pay  extra  wages  to  avoid  delaying  production  by  resisting  the 
union's  demand.  Hence  it  may  be  easier  to  get  higher  wages  from  a  trust 
than  from  separated  employers.  In  1888  the  whisky  trust  readily  paid 
more  for  barrels  and  coal  that  wages  might  be  raised.     Public  favor  could 


I  yd  The  Plain  Facts  as  to  the  Trusts. 

The  Lower  the  People,  the  Less  the  Competition. — Sav- 
ing in  expense  to  reduce  selling  price  sounds  well  as  a 
pretext  for  combining,  when  the  actual  reason  is  to  sell 
watered  stock  or  to  secure  a  monopoly.  "  Without  this 
feature  of  monopoly  there  would  have  been  no  visitation 
by  the  promoter,  no  waste  of  time  by  the  manufacturers, 
and  no  talk  about  trusts,"  *  The  wastes  of  competition, 
in  advertising,  traveling  salesmen,  and  manufacture  of 
more  goods  than  are  needed,  it  would  seem  desirable  to 
avoid.  But  aside  from  the  fact  that  competition  can  rarely 
be  kept  away  except  by  predatory  clubbing,  this  line  of 
reasoning  soon  reaches  absurdity.  As  a  complete  mon- 
opoly might  produce  for  the  people  the  goods  they  ought 
to  have,  at  the  prices  they  ought  to  pay,  avoiding  all 
waste,  so  a  wise  despot  might  assign  to  each  subject  the 
work  he  ought  to  do,  at  the  wages  he  ought  to  get,  on 

easily  be  bought  thus,  and  the  cost  taxed  back  on  consumers.  Yet  a  mon- 
opoly trust  has  power  to  put  down  wages  arbitrarily.  \Vhere  there  is  but 
one  employing  concern  of  consequence,  especially  when  it  has  some  non- 
union mills  running,  strikers  have  a  poorer  chance  than  when  there  are 
other  employers  getting  the  trade  of  a  concern  entirely  idle.  This  was 
probably  one  reason  for  the  total  failure  of  the  recent  strike  of  steel  work- 
ers. And  however  large  its  profits,  a  trust  paying  more  than  its  class  of  men 
obtained  from  other  employers  would  be  making  a  gift.  More  men  would 
soon  learn  its  business  if  not  shut  out  by  unusual  conditions.  By  closing 
unnecessary  factories  and  forcing  men  into  other  occupations,  a  trust  does 
only  what  would  probably  happen  anyhow  from  failure  of  such  factories. 

Steadiness  of  Employment. — So  far  the  many  struggles  and  changes 
caused  by  trusts,  especially  before  1899,  have  probably  added  to  unsteadi- 
ness of  employment,  as  to  the  fluctuations  of  their  own  stocks.  After  a  trust 
had  dismantled  all  its  less  desirable  plants  (which  is  done  in  some  cases 
without  warning  to  employees),  and  had  become  secure  in  its  monopoly  by 
crushing  out  rivals,  wage  workers  in  its  industry  would  doubtless  have  em- 
ployment unusually  steady,  though  as  never  heretofore  in  the  last  half  cen- 
tury, they  would  have  to  accept  what  the  trust  offered.  But  not  many 
producers,  down  to  the  smallest,  suspend  work  in  depression  so  far  as  to 
scatter  their  workmen  and  customers. 

'  Nettleton,  53. 


Proper  and  Necessary  Measure  of  Monopoly.       lyy 

the  socialistic  principle,  preventing  all  mistakes  of  choice, 
underpay  and  overpay,  and  waste  of  labor  power. 
Nature  at  first  might  have  prevented  mistakes  and  waste 
by  withholding  from  mankind  the  power  of  choice,  and 
giving  animal  instinct  instead,  fitting  each  person  for  only 
one  line  of  action,  without  knowledge  of  other  Hnes. 
The  lower  the  life  and  power  of  choice,  the  less  the  risk 
of  mistake  and  loss.  Risk  is  removed  entirely  when  a 
person  ceases  to  live  at  all.^ 

Yet  There  Has  Always  Been  a  Large  Measure  of  Mon- 
opoly in  progressive  business.  The  most  skillful  work- 
men get  highest  wages  because  they  are  few,  and  have 
to  some  extent  a  monopoly  of  the  supply  of  their  grade 

^  Is  There  a  Waste  of  Labor  in  Family  Housekeeping  ? — Strange 
ideas  get  into  print.  One  writer  ( The  Cosmopolitan,  November,  1900) 
after  figuring  out  $100,000,000  a  year  as  the  total  spent  in  this  country  on 
traveling  salesmen,  puts  the  waste  in  Indiana  for  fences  at  $200,000,000, 
and  says  a  great  sum  could  be  saved  if  instead  of  small  farms  tilled  by 
owners  we  had  tracts  of  10,000  acres  under  one  able  management.  Carry- 
ing the  trust  principle  further,  he  might  have  found  possible  a  great  saving 
in  gathering  families  by  hundreds  into  barracks,  to  be  supplied  with  food 
by  machinery  from  a  town  kitchen,  and  with  clothing  on  the  army  contract 
plan.  For  fences,  to  avoid  the  labor  of  herding  live  stock  seems  reason 
enough.  In  states  having  stock  laws,  crops  are  unfenced.  To  expect 
better  results  from  hirelings  than  from  men  tilling  their  own  land  is  a  new 
notion.  Intensive  farming  on  a  small  scale  has  long  been  a  hobby  with 
thinkers  on  the  subject.  Even  the  bonanza  wheat  farms  of  Dakota,  on 
whose  level  areas  use  of  machinery  was  carried  to  the  utmost,  are  grad- 
ually being  divided  into  smaller  tracts.  (Ely,  I93.)  People  are  not 
raised  for  their  flesh.  The  experience  of  self-support  and  family  house- 
keeping, essential  to  development  of  mind  and  character,  will  still  be 
secured  by  the  same  natural  choice  that  leads  a  girl  to  prefer  factory  work, 
with  freedom  and  agreeable  associations,  to  kitchen  work,  with  better 
board  and  lodging  and  more  clear  money.  Science  and  sense  agree  on  all 
these  things.  Cooperative  housekeeping,  which  some  say  is  bound  to 
come,  to  emancipate  the  wife  from  the  kitchen,  will  have  to  reduce  its 
costs  about  half  to  come  within  reach  of  people  not  already  able  to  board, 

12 


1/8  The  Plain  Facts  as  to  the  Trusts. 

of  labor.  Jenny  Lind  and  Adelina  Patti  had  each  in  her 
day  a  complete  monopoly  of  highest  vocal  talent.  It  is 
so  in  every  kind  of  business.  A  carriage  maker  whose 
vehicles  are  known  to  be  the  best  offered  in  a  certain  ter- 
ritory gets  highest  prices  because  he  has  a  monopoly  of 
the  supply  of  that  grade.  If  many  others  made  an  equal 
grade,  the  price  would  have  to  be  lowered  to  sell  all  the 
carriages  produced.  The  highest  prices  in  every  line 
depend  upon  limit  of  supply  —  upon  some  element  of 
monopoly.  The  reason  a  person  strives  to  excel  is  that 
he  may  thus  rise  above  the  common  rank  into  a  field 
affording  some  monopoly  advantages.  Therefore,  the 
monopoly  power  that  comes  alone  from  surpassing  ex- 
cellence and  cheapness  of  product  is  to  be  welcomed  as 
an  evidence  of  progress  in  supplying  human  wants. 

Department  Stores. — The  license  tax  law  of  Missouri 
against  department  stores,^  as  these  do  not  make  a  direct 
effort  to  drive  competitors  out  of  business  in  order  to  sell 
higher  afterward,  could  have  helped  small  stores  only  by 
preventing  the  large  stores  from  selling  the  same  goods 
cheaper.  The  benefit  to  the  small  store  would  then  have 
been  withheld  from  the  consumer,  increasing  the  cost  to 
the  people  of  retailing  goods,  and  supporting  merchants 
not  needed  in  retail  business,  who  might  otherwise  en- 
gage in  making  things.  The  interest  of  society  is  to 
have  every  person  do  the  needed  work  he  can  do  best, 
that  no  labor  be  lost,  and  that  supplies  for  all  be  in- 
creased and  cheapened.  The  harm  to  landlords  in  hav- 
ing small  stores  left  vacant  is  greatly  overbalanced  by 
the  benefit  to  the  masses  in  having  rents  lowered. 

The  Waste  in  Trying  to  Make  Employment. — Any  ar- 

1  Declared  unconstitutional  in  1900,  as  was  also  an  Illinois  city  license 
ordinance  intended  for  the  same  purpose. 


Proper  and  Necessary  Measure  of  Monopoly.       179 

rangement,  by  law  or  custom,  that  keeps  a  person  in 
business  whose  patrons  would  be  better  served  without 
him,  is  as  wasteful  as  hiring  a  man  to  wheel  the  same 
sand  back  and  forth  between  two  piles  to  keep  him  em- 
ployed. Few  working  men  could  bear  so  thin  a  cover- 
ing to  charity.  They  want  their  work  to  be  useful,  and 
worth  its  cost.  A  small  manufacturer  or  trader  of  just 
mind  will  regard  his  own  work  likewise,  and  cease  to 
complain,  when  he  realizes  that  his  customers  leave  him 
because  they  can  do  better  elsewhere.  Public  opinion, 
in  its  feeling  of  censure,  has  failed  to  separate  those  con- 
cerns that  follow  the  praiseworthy  method  of  getting 
large  trade  by  permanently  giving  best  values,  from  the 
class  of  trusts  that  get  trade  by  buying  out  and  killing 
off  competition,  in  order  to  place  consumers  at  their 
mercy.  The  two  classes  are  as  different  as  faithful  serv- 
ants receiving  a  deserved  reward,  and  a  band  of  robbers 
helping  themselves  by  force. 

Necessity  of  Agreement  to  Make  Competition  Reason- 
able.— Not  only  is  the  public  benefited  by  a  manufactur- 
er's attainment  of  some  monopoly  in  surpassing  excellence 
and  cheapness  but  it  is  also  desirable  that  there  be  among 
competitors  sufficient  agreement  to  allow  a  fair  profit  in 
every  selling  price.  In  cut-throat  competition  there  is 
no  thought  of  the  consumer.  His  benefit  is  accidental. 
The  purpose  often  is  to  get  another  dealer's  customers  to 
profit  from  by  higher  prices  in  future  sales.  A  person 
who  makes  a  practice  of  cutting  under  a  just  price  needs 
watching.  The  goods  he  delivers  may  be  different  from 
sample,  and  the  measure  may  be  lacking. 

Price  Cutting  Disreputable. — All  this  has  long  been 
well  understood  in  business.  A  desirable  class  of  trade, 
especially  in  sales  to  manufacturers  and  dealers,  is  seldom 


1 80  The  Plain  Facts  as  to  the  Trusts. 

gained  by  cutting  under  a  just  profit.  Solidly  successful 
concerns  rarely  make  sales  or  buy  in  that  way.  Cut- 
throat competition,  it  would  seem,  was  less  a  real  source 
of  trouble  than  a  convenient  excuse  for  seeking  the  large 
gains  of  monopoly  and  stock  watering.  Especially  true 
does  this  appear  in  view  of  the  fact  that  nearly  all  the 
trusts  have  been  formed  under  the  high  prices  and  pros- 
perous trade  of  1887-92,  and  1 898-1 901.  The  many 
industries  not  yet  monopolized,  or  not  suitable  for  con- 
solidation, bear  competition  as  well  as  do  the  trust  indus- 
tries. 

Competition  Forcing  Producers  Into  Trusts  Was  Un- 
natural.— In  the  few  notable  cases  in  which  trust  combi- 
nation did  regulate  excessive  competition,  the  latter  was 
unnatural.  The  high  profit  afforded  by  the  duty  on  re- 
fined sugar  caused  too  many  sugar  refineries  to  be  built, 
increasing  capacity  to  about  four  times  the  demand,  and 
in  their  struggle  for  existence  some  sixteen  out  of  forty 
refineries  failed.  The  trust  was  organized  in  1887,  and 
promptly  raised  price.  Since  1898  price  has  been  lower, 
as  at  previous  times  when  competition  appeared.  In 
1900  refiners  testified  there  was  practically  no  profit  in 
the  business.  Such  the  price  made  by  a  trust  against  a 
new  competitor  is  usually  supposed  to  be.  Similar  con- 
ditions of  profit  from  the  tariff,  causing  over-increase  of 
new  plants,  led  to  the  excessive  competition  removed  by 
the  tin-plate  trust  in  1898.  The  organization  of  the  first 
whisky  trust  in  1887  removed  excessive  competition 
caused  by  stamp  tax  changes,  which  gave  enormous  rise 
in  price  to  owners  of  large  stocks  of  whisky  in  ware- 
houses.^ 

'Bullock,  Tke  AtlanHc,  ]\xx\Q,  1 901. 

Ruinous  Losses  From  Building  Too  Many  Plants. — The  whisky 


Proper  and  Necessary  Measure  of  Monopoly.      1 8 1 

Associations  of  Competing  Producers  and  Dealers,  which 
have  long  existed  in  all  the  commercial  nations,  such  as 
the  American  Typothetae  of  employing  printers,  the 
Wholesale  Grocers'  Association  of  Michigan,  and  the 
Jackson  Retail  Grocers'  Association,  —  have  a  salutary 
effect  in  promoting  good  will  and  business  progress,  and 
in  holding  competition  within  reasonable  bounds.  Such 
associations  have  been  increasing,  but  in  any  local  com- 
munity where  they  do  not  exist,  business  competitors 
understand  that  price  cutting  is  a  bad  practice.  Agree- 
ments by  these  associations  on  prices  make  competition 
reasonable,  but  could  not  be  enforced  sufficiently  to 
become  monopolistic.  Apparently  a  good  combination 
of  a  new  kind  is  the  recent  agreement  between  the  Amer- 
ican Publishers'  Association  and  the  association  of  book- 
sellers, by  which  booksellers  cutting  below  a  fair  retail 
price  on  certain  kinds  of  books  cannot  get  more  of  them 
from  publishers.  Selling  books  near  cost  as  leaders  by 
department  stores  was  driving  out  of  business  the  reg- 
ular booksellers,  who  alone  carried  the  complete  stocks 
necessary  to  the  publishers  and  to  the  people  alike.  Co- 
operation in  fire  insurance  saves  expense  of  inspection,  and 
prevents  competition  from  making  the  companies  unsafe. 

The  Business  Moderation  and  Commercial  Morality  pro- 
moted by  these  various  associations,  together  with  the 
information  and  forecasts  now  furnished  by  trade  journals 

trust  closed  68  of  its  80  distilleries,  and  with  the  remaining  12  furnished 
an  output  equal  to  the  total  before.  Previously  many  had  been  idle. 
(Von  Halle,  66.)  Building  more  plants  than  demand  requires  brings 
inevitable  loss,  which  producers  must  learn  to  avoid,  or  suffer  from  it,  and 
society  with  them.  Where  concerns  are  small,  the  waste  of  plant  in  fail- 
ure is  little  noticed.  The  whisky  trust  dispensed  with  about  300  traveling 
men,  and  the  wire  trust  with  about  200.  In  the  settled  demand  for  their 
products,  from  dealers  and  manufacturers,  a  monopoly  would  not  need  to 
push  sales  as  with  most  kinds  of  finished  goods. 


1 82  The  Plain  Facts  as  to  the  Trusts. 

and  government  bureaus,  will  prevent  the  waste  of  compe- 
tition in  a  more  healthy  way  than  trusts  can  prevent  it,  so 
long  as  their  remedy  is  monopoly ;  though  if  they  use 
no  club,  what  they  can  save  from  competitive  wastes 
will  be  cheerfully  allowed  them  in  added  profits.  Where 
competitors  are  too  numerous  to  be  driven  out,  falling 
price,  taking  away  profit,  has  usually  kept  output  pretty 
near  the  proper  limit.  Since  the  depression  of  1893-97 
caution  against  overproduction  has  been  quite  noticeable, 
and  outside  the  realm  of  trusts.  In  the  summer  of  1900 
production  was  materially  checked  until  demand  strength- 
ened, and  business  in  general  was  lighter  than  in  1 899 
and  1 90 1.  Large  unsold  stocks  had  accumulated, 
mainly  because  of  prices  that  trusts  had  raised  excess- 
ively—  33/^  per  cent  higher  in  some  cases  than  in  the 
greater  activity  at  the  close  of  1901.  ^  Present  depres- 
sion in  Germany  is  due  largely  to  overproduction  by 
trusts.  If  trusts  are  to  be  a  safeguard  against  overpro- 
duction, they  must  turn  out  goods  with  more  modera- 
tion than  they  issue  shares  and  raise  prices. 

But  All  Are  Learning  the  Risk  of  Producing  Too  Much. 
Output  is  usually  gauged  to  inflow  of  orders  from  trav- 
eling men  and  wholesalers.  It  now  seems  not  to  be 
expected  that  a  factory  can  be  run  from  year  to  year  at 
full  capacity.  Doing  this  between  1872  and  1879,  to 
avoid  the  losses  of  idleness,  wasted  nature's  store  of 
raw  materials,  and  brought  prices  ruinously  below  cost 
of  production,  in  the  pig  iron  industry.^  Uncertainty  of 
crops,  and  of  the  weather  demand  for  seasonable  goods, 
will  always  make  business  irregular.  In  this  world  of 
change  certain  regularity  would  be  unnatural.      Repeated 

»  Pulilic  Opinion,  I90I,  p.  824. 
2Hadley,  Railroads,  72. 


Proper  and  Necessary  Measure  of  Monopoly,       1 8  3 

experience  with  the  blighting  results  of  going  ahead 
blindly  has  apparently  left  a  lasting  lesson.  Business  is  a 
complex  thing  in  this  age,  but  it  is  coming  to  be  better 
understood.' 

Excess  of  Competition  Brings  Monopoly,  as  excess  in 
many  things  produces  the  opposite  extreme.  Among 
producers  with  large  capital,  pools  had  become  almost 
universal  by  1885,  before  the  period  of  trusts.  With 
different  arrangements  in  different  cases,  territory  was 
divided,  output  restricted,  and  sales  made  through  one 
agency  to  hold  all  to  the  same  price,  a  manufacturer 
sometimes  being  paid  more  by  his  pool  to  close  down 
than  he  could  have  made  by  running.^  A  tendency 
toward  monopoly  has  perhaps  always  been  noticeable 
where  conditions  favored  it.  Monopoly  to  the  extent  of  a 
pool  or  agreement  of  some  kind,  among  producers  in  any 
line  requiring  a  vast  plant,  may  usually  be  necessary  for 
the  public  good.  Without  such  a  limit  to  competition, 
the  stronger  may  drive  the  weaker  out  of  business,  se- 
curing a  monopoly,  and  then  by  raising  price  cause  new 

'  Spoiling  a  Market. — '*  Professor  Marshall  thinks  that  trade  morality 
is  inclined  to  condemn  a  man  who  '  spoils  a  market '  by  continuing  to  pro- 
duce for  any  price  that  barely  covers  cost  of  material  and  labor."  (Bul- 
lock, 207.)  Doing  this  is  not  a  real  benefit  to  the  consumer;  because 
from  its  weakening  of  producers  their  product  will  later  be  higher  in  price, 
or  poorer  in  quality,  than  it  would  have  been  otherwise.  Undoubtedly  it 
is  wrong  to  sell  below  cost  except  for  such  a  reason  as  closing  out  a  busi- 
ness. Operation  without  profit  may  have  been  common  with  recklessly 
managed  bankrupt  railroads,  which  cannot  suspend  and  disappear,  but  is 
not  now  the  rule  with  other  kinds  of  business.  Dun's  trade  reports  show 
that  output  changes  largely  within  a  short  period,  according  to  changes  in 
inflow  of  orders.  Continuing  to  produce  at  a  loss,  because  by  idleness  a 
larger  loss  must  be  incurred,  in  interest  on  capital  and  in  salaries,  would 
seem  to  be  a  poor  policy,  in  view  of  its  effect  to  deepen  depression  and  to 
delay  return  of  better  times  The  market  upon  which  a  concern  must  live 
is  more  important  than  losses  to-day, 

^Hadley,  Railroads,  68, 


1 84  TJie  Plain  Facts  as  to  the  Trusts, 

concerns  to  be  started,  and  then  the  weaker  to  be  driven 
out  again,  and  so  on  in  an  endless  alternation  of  monop- 
oly and  cut-throat  competition.  The  gain  to  be  obtained 
by  disregarding  an  unreasonable  pool  or  agreement  pre- 
vents it  usually  from  becoming  a  harmful  monopoly. 
Perhaps  the  danger  is  that  it  will  be  broken  too  freely, 
with  an  opening  of  the  way  back  to  cut-throat  competi- 
tion. 

Monopoly  Hunger  a  Cause  of  Cut-Tkroat  Competition. — 
Because  all  the  strong  concerns  in  a  business  might  lose 
money  and  still  not  fail,  is  a  reason  why  a  price-cutting 
battle  of  the  giants  seldom  occurs  under  natural  condi- 
tions. Competition  is  beneficent  when  confined  to  get- 
ting trade  by  lowering  cost  and  improving  goods.  Such 
ninety-nine  per  cent  of  it  undoubtedly  has  been.  Injury 
to  competitors  is  then  but  little  thought  of,  and  there  is 
a  normal  price,  covering  cost  of  production  and  a  fair 
profit,  with  large  concerns  as  with  small.  The  idea  that 
modern  large  scale  production  leads  into  competition 
meant  to  destroy  must  have  arisen  from  a  few  cases  like 
those  of  the  sugar  and  whisky  trusts.  It  has  not  been 
so  with  other  vast  industries.  Competition  is  not  war 
until  monopoly  hunger  appears  in  cut-throat  slashes  to 
destroy  competitors  and  gain  possession  of  the  whole 
field ;  and  monopoly  hunger,  not  competition,  must  be 
the  mother  of  trusts,  because  competition  is  not  destruc- 
tive nor  harmful  in  those  industries  not  to  be  monopo- 
lized. No  capable  producer  in  a  business  not  naturally 
monopolistic  need  fail  under  competition ;  while  the  in- 
capable fail  quickly  enough  to  leave  him  a  fair  profit. 
As  these  are  unfitted  to  survive,  the  more  quickly  they 
drop  out  into  work  they  can  do,  the  better  it  is,  both  for 
them  and  for  society.     The  loss  of  their  plants,  which 


Proper  and  Necessary  Mcasiire  of  Monopoly.      185 

may  at  once  become  junk,  is  one  of  the  unavoidable  costs 
of  progress. 

Was  Not  Reasonable  Competition  Always  Meant?  — 
Competition,  like  every  other  force,  must  be  governed 
by  reason,  which  here  includes  an  element  of  monopoly. 
It  is  so  governed  in  ordinary  affairs.  The  reasonable- 
ness of  merchants  is  described  above,  and  unorganized 
workingmen  seldom  offer  to  work  for  lower  wages  in 
order  to  get  employment.  The  theory  of  competition 
seems  to  be  true  now,  as  in  the  days  of  the  older  econo- 
mists. It  must  always  have  been  seen  that  an  element 
of  monopoly  agreement  would  appear  before  greedy 
competitors  had  destroyed  one  another.^ 

Trade  Union  Monopoly. — Another  form  of  proper  and 
necessary  monopoly  is  that  of  a  trade  union.  Its  power 
is  derived  from  its  monopoly  of  the  supply  of  suitable 
labor.  Some  labor  leaders  seem  now  more  fully  to 
realize  this  fact,  in  their  turning  from  the  socialistic  idea 
of  considering  all  rich  private  owners  grinding  monopo- 
lists, to  a  position  not  antagonistic  to  trusts,  which  usu- 
ally pay  highest  wages,  necessarily  admitting  the  right 
of  combination  as  belonging  to  workmen  no  less  than  to 
themselves  ;  though  the  wire  trust  is  one  that  will  not 
recognize  unions,  while  some  of  the  steel  trusts  freely 
permitted  additional  plants  to  be  unionized.  Among 
persons  of  avowed  socialistic  ideas,  trusts  are  favored, 
because  by  uniting  industry  they  prepare  the  way  for  the 
government  ownership  socialists  hope  for.  Some  labor 
leaders  oppose  anti-trust  laws,  for  fear  they  may  be  ap- 
plied against  labor  unions.     The  most  effective  use  yet 

1 "  The  majority  of  men  do  not  habitually  carry  competition  to  destruc- 
tive lengths  when  acting  freely  by  the  impulse  of  natural  motives."  (F. 
H.  Giddings,  P.  S.  Quarterly,  1 887,  p.  627.) 


1 86  The  Plain  Facts  as  to  the  Trusts. 

made  of  the  federal  anti-trust  law  of  1 890  was  in  the  sup- 
pression of  the  Chicago  railway  strikes  of  1 894,  though 
the  Inter-State  Commerce  law  was  also  applied,  and  the 
common  law  against  conspiracy. 

Combination  Including*  Both  Employer  and  Workman. 
The  monopoly  power  of  the  combination  of  manufac- 
turers of  metal  beds  in  England  was  maintained  chiefly 
by  a  compact  with  the  trade  union,  in  which  the  work- 
men, as  a  return  for  their  share  of  the  monopoly  benefits 
in  very  high  wages,  agreed  not  to  accept  employment 
from  bed-makers  outside  of  the  combination,  and  to  strike 
against  any  employer  who  attempted  to  withdraw  ;  while 
the  employers  agreed  to  hire  none  but  union  men.'  This 
was  called  Mr.  Smith's  Birmingham  plan.  Being  a  coa- 
lition of  the  employer  and  employee  to  rob  the  consumer 
with  high  prices,  it  indulged  in  not  a  little  tyranny. 
Relief  came  from  the  manufacture  of  metal  beds  on  the 
Continent  to  be  admitted  under  British  free  trade ;  from 
the  withdrawal  of  employers  in  spite  of  strikes  to  hold 
them,  whose  nature  revolted  against  such  wholesale 
compulsion,  which  Mr.  Smith  admitted  was  the  secret  of 
strength  ;  and  from  dissatisfaction  among  workmen,  who, 
in  the  effect  of  high  prices  to  lessen  sales  and  make  work 
scarce,  found  a  good  deal  of  truth  in  the  old  wage  fund 
doctrine,  that  to  increase  too  much  the  pay  of  some, 
takes  away  the  work  of  others.  In  1900,  after  an  exist- 
ence of  eight  years,  the  bedstead  monopoly  was  prac- 
tically broken  by  withdrawal  of  manufacturers.* 

'  See  Chicago  Civic  Federation's  book  on  the  Trust  Conference  of  1899. 
Also  Reznew  of  Kevieivs,  Nov.  1900. 

The  Exclusive  Agreement,  which  is  an  American  name  for  Mr. 
Smith's  plan,  together  with  the  sympathetic  strike,  which  is  usually  illegal 
(Stimson)  because  designed  not  directly  to  benefit  the  strikers  but  to  injure 
other  workmen's  employer — let  into  the  Chicago  building  trades  the  devil  of 


Proper  and  Necessary  Measure  of  Monopoly.      187 

The  Necessity  for  a  Trade  Union's  Monopoly  lies  in  the 
fact  that  only  by  such  combination,  in  large  scale  indus- 
try, can  a  workman  bargain  with  his  employer  on  any- 
thing like  equal  conditions  of  freedom  to  contract  or  not 
Unlike  a  combination  producing  a  necessary  article,  a 
great  labor  trust,  formed  by  organizing  each  trade  into 
local  and  national  unions,  and  these  into  the  American 
Federation  of  Labor,  might  not  possess  dangerous  mon- 
opoly power.  Not  only  would  united  action  be  imprac- 
ticable among  millions  of  scattered  workers,  unlike 
dozens  of  concerns  in  one  industry,  but  the  general  cessa- 
tion of  work  that  would  follow  excessive  demands  would 
soon  bring  strikers  to  a  condition  of  need,  and  to  a  spirit 
of  compromise.  Employers  and  the  public  can  do  with- 
out their  work  better  than  they  can  do  without  their 
wages,  as  was  shown  in  the  recent  strike  of  steel  work- 
ers, the  trust  keeping  half  its  mills  running.  The  claim 
of  some  trust  officials,  in  their  testimony,  that  organized 
labor  can  deal  better  with  a  trust  than  with  separate  pro- 
ducers, seems  about  the  same  as  to  say  that  Stonewall 
Jackson,  in  1862,  instead  of  defeating  Fremont  and 
Shields  one  at  a  time,  would  have  found  it  more  conve- 

tyranny  and  bitterness  that  was  only  cast  out  by  the  losses  and  suffering  of 
the  year-long  strikes  and  lockouts  of  1900.  (/'.  S.  Quarterly,  1901.) 
The  exclusive  agreement  has  not  been  very  common.  It  was  made  in  1901 
at  the  settlement  of  a  strike  in  Indiana,  between  an  association  of  building 
contractors,  meeting  at  Anderson,  and  the  unions  among  their  workmen. 
In  one  recent  case  in  Illinois,  strikers  in  building  trades  demanded,  as  a 
condition  for  returning  to  work,  that  the  association  of  contractors  disband. 
A  similar  demand  was  made  by  the  employers  at  Chicago.  Collective 
bargaining  between  employers  and  employees  is  to  be  commended,  but  the 
compulsion  of  the  Smith  plan  is  out  of  harmony  with  the  present  age.  In 
Professor  Clark's  prophecy  for  the  twentieth  century  i^The  Atlantic,  Jan. 
1902)  he  foresees  that  consumers,  independent  producers,  and  unorganized 
workmen,  may  unite  and  remove  by  law  the  monopoly  of  trusts  and  unions 
working  on  the  Smith  plan. 


1 88  The  Plain  Facts  as  to  the  Trusts. 

nient  to  meet  them  together.  The  hope  of  some  labor 
leaders  seems  vain,  that  workmen  can  organize  sufficiently 
to  meet  a  trust  with  equal  chances.  A  better  protection, 
it  appears,  is  a  trust's  fear  of  arousing  public  opposition 
by  oppressing  labor.  The  position  of  unions  would  be 
strengthened  by  reduction  or  removal  of  superfluous 
tariff  duties.  During  the  strike  very  little  steel  and  tin- 
plate  was  brought  in  over  the  tariff  barrier.  In  such 
conditions  a  trust  can  take  its  time  to  starve  out  strikers, 
knowing  that  consumers  will  have  to  wait  until  it  is  ready 
to  supply  them.  Perhaps  the  unequalled  power  of  unions 
in  England  is  largely  due  to  the  promptness  with  which, 
under  free  trade,  goods  come  in  from  abroad,^ 

1  Futility  of  Sympathetic  Strikes,  and  of  Labor  Contests  with  a 
Trust. — All  the  widespread  sympathetic  strikes  have  been  disastrous  fail- 
ures, for  the  simple  reasons  that  the  larger  the  number  of  the  idle,  the  more 
there  are  to  be  supported,  and  the  fewer  there  are  to  contribute,  while  two- 
thirds  of  the  public  turned  against  the  strike,  by  its  interruption  of  their 
earning  and  consuming,  consists  of  wage  workers  themselves.  (F.  S.  Hall, 
Sympathetic  Strides. )  Mr.  and  Mrs.  Webb,  in  their  Industrial  Detnocracy, 
page  554,  after  pointing  out  that  in  a  trust-controlled  industry  there  is  no 
employer  to  leave  the  others  and  grant  labor's  demand,  and  that  there  is 
but  a  single  will  to  carry  out  blacklisting,  conclude  as  follows  :  "We  may 
therefore  infer  that  the  extreme  concentration  of  industry  into  trusts  and 
monopolies  will  lead,  either  to  trade  union  failure  and  decay,  or  else  to  an 
almost  exclusive  reliance  on  the  method  of  legal  enactment"  (labor 
laws).  Levasseur  shows  that  the  largest  corporations  have  easily  overcome 
unions.  This  was  notably  so  in  the  strikes  on  the  Burlington  road  in  l888, 
and  at  the  Carnegie  works  in  1892,  to  the  complete  eradication  of  unionism. 

Organizing  All  Industry  into  Trusts. — One  writer  (E.  S.  Meade, 
The  Forum,  April,  1901)  thinks  that  all  classes,  even  farmers  and  wage 
workers,  might  so  organize  themselves  into  trusts  as  to  add  to  their  own 
charges  what  they  lose  in  high  prices  exacted  by  monopoly.  Undoubtedly, 
for  any  class  of  workers  or  employers,  it  has  always  been  wise  to  be  united 
and  watchful.  This  writer  says  that  the  organization  of  the  Steel  Corpora- 
tion was  probably  brought  about  by  trusts  of  sheet  steel  and  tube  makers,  who 
resisted  high  prices  for  the  crude  forms  they  used,  and  were  about  to  make 
such  forms  for  themselves ;  and  that  now,  with  many  industries  under  the 


Proper  and  Necessary  Measure  of  Monopoly.      1 89 

one  steel  trust,  monopoly  profits  are  not  concentrated,  but  distributed.  This 
may  be  true  with  a  few  industries  dependent  upon  naturally  monopolistic 
sources  of  material.  But  if  extended  far,  a  trust  in  one  line  would  conflict 
with  trusts  in  others.  As  price  is  raised  by  limiting  supply,  forming  all 
occupations  into  trusts  would  make  all  things  scarce  ;  and  a  gold  producers' 
trust  might  then  make  money  scarce  too,  lowering  money  prices  to  the  old 
level.  Each  would  then  get  a  scanty  living,  but  he  would  have  the  satis- 
faction of  knowing  that  no  one  was  getting  the  better  of  him. 


CHAPTER   VIII. 

THE    EVIL    OF    RAILROAD    COMPETITION. 

Restriction  of  Competition  Among  Railroads  is  Desir- 
able.— Pooling,  which  among  railroads  is  a  formal  agree- 
ment on  a  division  of  the  business  to  be  done,  and  on 
rates  to  be  charged,  is  better  for  the  public  than  rate  cut- 
ting or  rate  wars,  from  whose  temporary  low  prices  the 
reaction  is  toward  prices  higher  than  they  would  have 
been  if  no  war  had  broken  out.  Besides,  a  change  in 
rates,  not  to  be  foreseen,  adds  to  business  uncertainty — 
to  the  profits  dealers  must  charge  to  balance  their  losses  ; 
and  where  secret  rate  cutting  is  common,  the  advantage 
falls  chiefly  to  those  shippers  who  are  unscrupulous 
schemers.* 

The  Inter-State  Law  Dissolved  the  Pools  that  formerly 
existed.  Courts  in  this  country,  unlike  those  of  Europe, 
did  not  enforce  these  pools,  regarding  them  as  contracts 
in  restraint  of  trade.  Yet  from  necessity  the  railroads, 
since  the  enactment  of  the  Inter-State  Law  of  1887,  and 
by  approval  of  the  Commission,  have  been  in  substantial 
agreement  on  rates.  These  they  agree  upon  through 
such  organizations  as  the  Central  Traffic  Association, 
and  the  Western  Passenger  Association.  While  the 
rules  of  these  associations  cannot  be  enforced  by  law, 
general  compHance  with  them,  usually  voluntary,  is 
sometimes  secured  through  boycotting  or  retaliatory 
measures.     A  company  breaking  the  agreement  may  be 

iHadley,  156. 

190 


The  Evil  of  Railroad  Competition.  191 

deprived  by  the  other  companies  of  through  ticket  ad- 
vantages, and  if  its  rate  cutting  becomes  serious,  they  too 
may  cut  rates  against  it,  to  force  it  to  abide  by  the  agree- 
ment. Suspicion  of  rate  cutting  arises  when  a  road  seems 
to  be  getting  more  than  its  share  of  traffic.  When  the 
association  rules  are  closely  observed,  competition  among 
railroads  is  not  in  prices,  but  in  speed,  frequency,  and 
comfort  of  trains.^ 

'  Rate  Cutting  on  grain  out  of  Kansas  City  lately  threatened  a  rate  war. 
The  Wabash  in  September  notified  the  passenger  association  that  it  would 
no  longer  observe  the  schedule  of  rates  to  Buffalo,  because  competitors  had 
not.  The  recent  withdrawal  of  the  Missouri  Pacific  from  the  Western  Traffic 
Association  is  said  to  be  due  to  the  refusal  of  the  company  to  pay  a  fine 
assessed  against  it  for  rate  cutting.  Sometimes  the  weak  lines  in  an  asso- 
ciation ignore  a  rule  pushed  through  by  the  strong  lines,  as  to  excursion 
rates  or  similar  matters.  The  Pere  Marquette  and  the  Ann  Arbor  had  a  rate 
war  in  1901,  cutting  the  price  of  a  ^15  ticket  down  to  $5,  then  to  $z,  and 
at  last  to  25c.  Such  wars  are  not  frequent.  A  noted  rate  war  occurred  in 
1881,  with  tickets  at  ^5  from  Boston  to  Chicago  (regular  rate  about  ^18). 
The  Pennsylvania,  in  1884,  cut  its  emigrant  rate  to  St.  Louis  from  $13  to 
$1,  to  force  other  companies  to  restore  a  pool. 

The  greatest  war  in  freight  rates  occurred  in  1876,  making  a  havoc  of 
waste  in  railroad  capital  by  carrying  below  cost,  which  loss  did  not  benefit 
shippers  accordingly,  because  of  discrimination  in  favor  of  the  few. 

Railroad  Agreements  are  Still  Called  Pools,  despite  the  Inter-State 
Law,  and  perhaps  they  differ  from  former  pools  simply  in  being  less  effective. 
The  following  are  recent  newspaper  clippings  : 

"  All  roads  east  of  Chicago  have  been  for  two  years  members  of  one  of 
the  strongest  pools  ever  formed,  and  managers  of  the  lines  parties  to  it,  it 
is  said,  will  soon  begin,  now  that  the  success  of  the  combine  is  assured, 
to  prune  their  expense  in  the  way  of  discharging  soliciting  and  general 
agencies." 

"  The  three  high-priced  officials  in  charge  of  the  so-called  western  pool 
have  utterly  failed  to  secure  a  division  of  traffic  or  earnings,  and  none  of 
the  roads  cares  anything  for  their  edicts  or  demands.  Their  salaries 
foot  up  nearly  $40,000,  and  several  roads  threaten  not  to  pay  their  share  if 
the  situation  does  not  improve." 

"  Judge  Hazel  of  Buffalo  said  he  would  not  grant  the  injunction  against 
ticket  scalpers,  because  the  company  asking  it,  the  Lackawanna,  was  a 
member  of  the  Trunk  Line  Association,  which  was  a  pool  in  violation  of 
the  Inter-State  and  Sherman  anti-trust  laws." 

' '  Officers  of  certain  roads  will  report  to  their  traffic  association  cut  rate 


1 92  The  Plain  Facts  as  to  the  Trusts. 

Railroad   Competition  Not  Like  Other   Competition. — 

Excessive  competition  in  freight  carrying  is  a  much 
greater  evil  than  such  competition  in  producing  a  com- 
modity. The  reasonable  practice  of  selling  a  large  quan- 
tity at  lower  prices  than  a  small  quantity  causes  little 
injury  to  the  smaller  buyers  of  material.  As  explained 
before,  price  reduction  to  the  large  buyer  is  slight,  and 
his  advantage  is  usually  balanced  by  his  extra  risk. 
Differences  here  rest  on  a  just  basis,  which  is  uniformly 
maintained,  because  materials  will  keep,  and  their  pro- 
ducer has  no  need  to  give  up  profit  in  order  to  sell 
quickly.  But  a  railroad's  capacity  to  carry  freight  will 
not  keep.  For  idle  equipment  every  day  is  lost  forever, 
in  the  same  way  that  idle  time  is  lost  to  a  laborer  need- 
ing no  rest.  As  idle  cars  decay  from  rust  and  weather, 
as  interest  goes  on  regardless  of  the  use  made  of  capital, 
and  as  the  property  of  unnecessary  roads  cannot  be 
diverted  to  other  business,  a  railroad  company  is  under 
pressure  to  get  large  shipments  by  shading  rates.  The 
large  or  grasping  shipper  is  then  enabled  to  undersell 
the  many  smaller  shippers,  on  whose  payment  of  full 
rates  the  road  may  to  a  large  extent  exist.  Here  is  a 
serious  evil.  If  the  large  shippers  could  do  all  the  busi- 
ness, crowding  out  the  smaller  might  benefit  society  with 
cheaper  goods  ;  but  if  the  low  rates  given  on  the  larger 

contracts  with  shippers  from  Colorado  and  Utah.  But  an  oft'icial  is  quoted 
as  saying  that  agreements  with  a  majority  of  largest  shippers  will  never  be 
revealed  ;  because,  '  while  it  is  true  that  these  contracts  are  in  violation 
of  the  Inter-State  Law,  the  railroads  have  assumed  a  moral  obligation 
they  will  not  disown,'  which  arises  from  the  fact  that  large  shippers  have 
contracted  to  deliver  goods  at  prices  based  on  the  illegal  concessions  in 
freight  rates.  This  official  says  that  a  company  revealing  an  illegal  con- 
cession would  get  no  more  business  from  the  shippers  to  whom  it  was 
granted.  Community  of  interest  has  not  stopped  illegal  discrimination  in 
traffic  from  Colorado  and  Utah." 


TJie  Evil  of  Railroad  Competition.  193 

shipments  were  paid  on  all,  the  carrying  would  be  un- 
profitable to  the  railroad.  Hence,  with  monopolistic 
railroads  and  steamship  lines,  far  more  so  than  with  other 
kinds  of  business,  restriction  of  competition  by  some 
method  of  pooling  seems  necessary  for  public  welfare/ 
Necessity  for  Railroad  Pools. — The  insufficiency  of  the 
"  gentlemen's  agreement  "  to  keep  rates  uniform,  and  also 
of  the  best  organized  traffic  associations,  has  led  to  a 
settled  feeling  in  favor  of  permitting  pools,  supervised 
by  the  Inter-State  Commerce  Commission  and  subject  to 
their  approval.  By  this  arragement,  rates  and  regula- 
tions could  be  kept  reasonable  to  the  public  by  the  Com- 
mission, and  every  company  could  be  held  by  the  others 
to  the  pool  contract  by  law.  Instead  of  separate  agen- 
cies, each  lowering  rates  to  get  the  business  of  large 
shippers,  one  joint  office  would  answer  for  all  the  roads. 
A  pool  is  much  more  effective  than  a  simple  agreement ; 
because  under  a  pool,  each  company,  whether  or  not  it 
occasionally  exceeds  its  share,  gets  only  its  percentage 
of  tonnage  or  of  the  earnings  divided  (according  to  im- 
portance of  each  road) ;  while  under  an  agreement  its 

^  Hadley,  Railroads,  8i,  143. 

Lowering  Prices  to  Farmers  on  Grain. — The  effect  of  railroad  com- 
petition in  depressing  local  prices  of  grain  was  set  forth  at  the  Chicago 
Trust  Conference  of  1899  by  Mr.  S.  H.  Greeley,  of  the  National  Grain 
Growers'  Association.  (Collier,  178.)  It  seems  that  each  road,  to  secure 
a  full  share  of  grain  to  carry,  favors  with  low  rates  a  few  shippers  who 
favor  it,  and  that  these,  other  grain  buyers  being  driven  out  of  business  by 
higher  rates,  soon  have  the  field  to  themselves,  and  make  price  to  farmers 
lower  than  it  would  be  if  there  were  competitive  buyers.  It  is  the  busi- 
ness of  the  favored  buyers  to  see  that  their  road  gets  its  share  of  tonnage. 
"  Practically  all  the  great  railroads  tapping  the  grain  belt  are  in  the  grain 
business."  The  railroad  favors  accorded  the  Big  Four  meat  combination 
have  enabled  it  to  lower  the  price  of  cattle  in  the  same  way.  Railroad 
discrimination  has  doubtless  been  the  greatest  cause  of  monopoly,  and  com- 
petition not  well  pooled  has  been  the  cause  of  that  discrimination. 

13 


194  ^^^^'  Plain  Facts  as  to  the  Trusts. 

local  agents  are  continually  tempted  to  cut  rates  in  order 
to  get  business  and  make  a  good  showing  in  tonnage 
and  earnings/  Paying  back  a  rebate  to  a  shipper  has 
been  the  favorite  way  of  cutting  rates  secretly,  espe- 
cially to  avoid  detection  by  government  investigators. 
While  under  a  settled  pool  competitive  rates  might  not 
fall  so  fast  as  heretofore,  they  would  be  uniform  and  im- 
partial, giving  each  shipper  as  good  a  chance  in  business 
as  any  other  operating  on  the  same  scale  ;  and  compe- 
tition in  speed  and  prompt  service  would  continue,  per- 
haps without  breaking  the  rates  when  under  differentials. 
The  old  pools  were  weak  and  unreliable,  not  being 
enforceable  at  law,  and  did  not  keep  rates  too  high,  be- 
cause then  usually  a  company,  by  breaking  a  pool  and 
taking  more  than  its  share  of  business,  could  add  for  a 
time  to  its  earnings  and  profits. 

Cause  of  Recent  Railroad  Consolidation. — The  laws 
against  pooling  are  said  by  railroad  owners  to  be  the 
cause  of  the  recent  consolidation  into  allied  systems. 
They  say  railroad  values  cannot  be  preserved  under  the 
present  exposure  to  the  excesses  of  competition.  Hence 
they  have  resorted  to  the  "community  of  interest"  plan 
to  consolidate  competing  lines  into  a  few  great  groups. 
The  Pennsylvania  has  bought  a  controlling  share  of  each 
of  the  three  lines  south  of  it — the  Baltimore  and  Ohio, 
the  Chesapeake  and  Ohio,  and  the  Norfolk  and  Western. 
Messrs.  Hill  and  Morgan,  with  their  associates,  have 
bought  controlling  shares  of  the  Northern  Pacific  and 
the  Burlington,  allying  them  with  the  Great  Northern, 
which  they  previously  owned.  Messrs.  Harriman  and 
Rockefeller  have  united  thus  to  the  Illinois  Central  the 
Alton,   the   Union    Pacific,   and    the    Southern    Pacific. 

'  Iladley,  157. 


The  Evil  of  Railroad  Competition.  195 

Smaller  roads  have  been  added  to  the  Gould  system  in 
the  Southwest,  consisting  mainly  of  the  Missouri  Pacific 
and  the  Wabash ;  and  to  the  Vanderbilt  system  in  the 
Northeast,  consisting  mainly  heretofore  of  the  New  York 
Central,  the  Lake  Shore,  the  Michigan  Central,  and  the 
Big  Four.  Election  of  leading  men  from  one  group  as 
directors  in  the  companies  of  another  group  promotes 
harmony  among  all.  Most  of  this  consolidation  has 
taken  place  within  the  last  two  years,  though  the  gath- 
ering of  small  roads  into  systems  has  been  going  on 
steadily  since  1850,  especially  since  1865.  It  is  esti- 
mated that  from  100,000  to  112,000  miles  of  line  have 
now  fallen  under  control  of  five  capitalists.^  Since  these 
consolidations,  the  desire  for  permission  of  pooling  is  not 
so  strong  among  railroad  owners  as  it  was. 

Earlier  Consolidation  of  Local  Roads  Into  Through 
Lines.  —  Practically  all  the  consolidation  until  lately 
seemed  to  have  been  clearly  necessary  for  best  service. 
Without  it  there  could  have  been  no  long  distance  haul- 
ing at  low  rates.  It  is  such  hauling  that  has  made  the 
West,  made  the  railroads,  and  given  the  cheap  supplies 
that  have  made  modern  civilization.     Growing  business 

1 E.  P.  Bacon,  N.  A.  Review,  January,  1902. 

All  Lines  Passing  Under  Great  Systems. — The  following  was  pub- 
lished in  April,  1902  :  "  It  appears  to  be  certain  that  the  control  of  the 
Louisville  and  Nashville  system  has  passed,  or  will  pass,  to  the  owners 
of  the  Southern  Railway.  This  will  leave  but  two  lines  of  railway  in  the 
southeastern  states — the  Southern  and  the  Seaboard  Air  Line.  Although 
it  has  not  been  officially  announced,  it  is  known  that  the  Atlantic  Coast 
Line  system  will  soon  come  under  the  control  of  the  Southern.  The 
number  of  miles  then  to  be  under  control  of  the  Southern  will  aggregate 
31,349."  Mr.  Prouty,  of  the  Inter-State  Commission,  is  quoted  as  saying  in 
a  recent  address:  "Five  men  now  actually  control  the  railroads  of  the 
United  States.  There  is  no  longer  any  real  competition.  The  only  remedy 
is  government  control  of  rates.  We  are  face  to  face  with  railroad  monopoly." 
(Purchase  of  the  Louisville  was  later  carried  out  by  J.  P.  Morgan. ) 


196  TJie  Plain  Facts  as  to  the  Trusts. 

has  come  through  falling  rates,  made  possible  by  steel 
rails,  large  cars,  and  transcontinental  methods.  In  1853 
sixteen  local  roads  between  the  Hudson  and  Lake  Erie 
were  united  into  the  New  York  Central.  Several  hun- 
dred local  companies  in  England  were  gradually  united 
into  about  a  dozen.  Up  to  the  last  few  years  the  addi- 
tions to  the  great  American  systems  seemed  likewise 
necessary.  This  latest  consoHdation,  through  commu- 
nity of  interest,  may  not  at  once  improve  train  service 
materially,  nor  save  much  from  salaries  ;  but  it  soon  will 
enable  the  companies  to  improve  their  property,  and  to 
serve  the  public  better  and  at  lower  charges,  if  it  settles 
rates,  preserves  profits,  and  makes  income  depend  upon 
straight-forward  business,  not  upon  sharp  practices.^ 

1  Good  Effects  of  Recent  Consolidation. — A  supreme  court  decision  of 
1S98,  under  the  Sherman  anti-trust  law,  against  such  agreements  as  that 
of  the  Joint  Traffic  Association,  which  in  place  of  pools  had  been  approved 
by  the  Inter-State  Commission,  started  the  worst  rate  cutting  and  discrimi- 
nation known  in  recent  years.  It  was  seen  by  state  commissioners  and 
railroad  presidents  that  the  situation  was  serious,  no  early  legislation  being 
probable.  To  stop  the  demoralization.  President  Cowen,  of  the  Baltimore 
and  Ohio,  wrote  to  the  Inter-State  Commission,  promising  to  observe  the 
Inter-State  Law,  and,  contrary  to  the  usual  custom  previously,  to  help 
detect  its  violation  by  other  roads.  This  was  significant,  showing  willing- 
ness to  accept  state  regulation  and  follow  its  spirit,  and  showing  that  the 
Commission  had  at  last  won  the  confidence  of  railroad  managers.  At  a 
meeting  between  these  and  the  Commission,  the  rate  cutting  was  stopped  by 
agreement  early  in  1899.  But  seeing  that  the  peace  might  not  last.  Presi- 
dent Cassatt,  of  the  Pennsylvania,  arranged  with  W,  K.  Vanderbilt,  of 
the  New  York  Central,  a  joint  purchase  by  these  two  companies  of  con- 
trolling shares  in  the  Chesapeake  and  Ohio  and  the  Norfolk  and  Western. 
This  was  the  beginning  of  community  of  interest,  springing  from  the  inher- 
ent wastefulness  of  competition  without  pools.  It  was  made  possible  by 
the  ease  with  which  money  was  then  borrowed  by  any  one  railroad  system 
to  buy  shares  in  other  systems.  Its  benefits  will  be  great,  saving  shippers 
from  discrimination,  adding  safety  to  investments,  and  distributing  wealth 
by  diffusing  reliable  railway  shares  among  many  owners.  Removal  of  risk 
makes  railroad  shares  suitable  for  a  wide  circle  of  investors.     Under  honest 


The  Evil  of  Railroad  Competition.  197 

A  New  Law  Legalizing  Pools  May  Yet  Check  tlie  Com- 
bination movement.  It  seems  that  the  Inter-State  Com- 
merce measure  is  blocked  by  nothing  less  potent  than  a 
law  of  nature.  The  best  thought  appears  to  agree  that 
the  government  in  this  country  cannot  hope  to  stop 
harmful  discrimination  unless  it  removes  the  cause  by 
permitting  a  contract  agreement  to  be  reasonable  in  com- 
petition. To  permit  pooling  contracts  enforceable  at 
law  is  favored  not  only  by  railroad  managers  and  by 
economists,  but  also  by  the  Inter-State  Commission,  by 
boards  of  trade  and  by  state  railroad  boards.  The  objec- 
tion to  allowing  pools  has  been  among  some  Congressmen 
who  seem  not   to  realize    the    impossibihty  of  healthy 

management,  with  competition  between  districts  remaining,  only  a  fair 
return  on  capital  will  be  expected  or  will  be  possible.  (H.  T,  Newcomb, 
Review  of  Reviews,  August,  1 90 1.) 

The  discrimination  mentioned  above  was  described  as  follows  by  the 
Inter-State  Commission:  "The  situation  has  become  intolerable,  both 
from  the  standpoint  of  the  public  and  the  carriers.  .  .  .  Enormous  sums 
are  spent  in  purchasing  business,  and  secret  rebates  accorded  far  below  the 
standard  of  published  charges.  .  .  .  Concessions  are  mainly  confined  to 
the  heavier  shippers,  .  .  .  and  tend  to  the  injury,  and  often  the  ruin,  of 
smaller  dealers."  This  shows  that  in  the  business  eagerness  of  the  present 
day,  competition  among  monopolistic  railroads  must  be  regulated  by  pool- 
ing of  some  kind. 

Its  Relation  to  Government  Ownership. — This  scientific  unification 
of  railroad  systems,  and  of  their  relation  to  one  another,  is  viewed  with  favor 
by  advocates  of  public  ownership,  as  preparing  the  way  for  transfer  to  the 
government.  But  it  is  viewed  with  favor  by  their  opponents  also,  because 
the  reasons  for  government  ownership  are  lessened  by  the  elimination  of 
speculative  management,  and  of  discrimination  in  charges.  Holders  of  rail- 
way shares  and  bonds  may  eventually  desire  to  exchange  them  for  bonds  of 
the  government,  changing  the  public  ownership  movement  from  theorists 
over  to  the  railway  owners  themselves.  (Editor  Review  of  Reviews,  April, 
I901.)  But  when  the  government  bonds  were  paid,  where  would  the 
money  be  invested  ?  Some  vague  fear  has  been  expressed,  in  connection 
with  the  Great  Northern  consolidation,  that  the  magnates  may  soon  desire 
to  unload  their  properties  on  the  government. 


198  The  Plain  Facts  as  to  the  Trusts. 

competition  in  railroading,  and  who  fear  further  concen- 
tration of  capital;  and  most  of  all,  perhaps,  it  has  been 
among  those  who  profit  from  discrimination.  With  rail- 
roads, naturally  monopolistic,  capital  must  be  concen- 
trated to  render  good  service  ;  while  the  "  power  to  com- 
pete is  the  power  to  discriminate,  and  it  is  simply  out  of 
the  question  to  have  at  once  the  absence  of  discrimination 
and  the  presence  of  competition."  ^ 

An  Irresistible  Temptation. — To  many  managers  the 
temptation  now  to  cut  rates  is  likely  to  be  irresistible. 
The  loss  from  it  falls  on  those  roads  which  are  managed 
most  honestly,  and  obey  the  law  best.  There  has  been 
least  discrimination  where  pools  have  been  best  settled  — 
in  the  Southern  States  and  in  Europe.  When  through 
business  is  pooled,  making  its  share  certain,  a  company 
is  left  free  to  develop  its  local  territory.^  Competition 
without  pools,  by  giving  to  competitive  points  rates 
unduly  low,  keeps  up  local  non-competitive  rates  to  give 
the  company  sufficient  profit,  and  thus  makes  the  average 
rates  higher.  The  West  Shore  road  failed  so  quickly 
because  it  had  practically  no  local  business  of  its  own, 
being  paralleled  its  entire  length  by  the  New  York  Cen- 
tral. Also,  such  competition  among  lines  hauling  be- 
tween the  same  points  keeps  up  average  rates  by  multi- 
plying the  expense  of  maintaining  soliciting  agents,  and 
by  causing  freight  to  be  carried  over  long  and  circuitous 
routes,  though  when  the  latter  yields  some  profit  it 
enables  weak  roads  to  serve  better  their  local  patrons. 
One  road  terminating  at  New  York  spent  in  one  year 
1^87 1,291  on  agencies,  advertising,  and  commissions  to 
ticket  agents.     As  much  as  $20.'jo  has  been  paid  to 

'  Chairman  Knapp. 

2  Hadley,  Railroads,  139. 


The  Evil  of  Railroad  Competition.  1 99 

secure  one  second-class  passenger  from  Chicago  to  San 
Francisco  ;  and  between  Chicago  and  St.  Paul,  connected 
by  a  shortest  line  of  373  miles,  traffic  has  been  carried 
by  a  roundabout  line  of  734  miles.  Forty -four  trains 
left  Chicago  daily  in  1898  for  New  York,  many  of  them 
partially  empty,^  With  sufficient  business  made  certain 
under  pools,  such  wasteful  carrying  would  not  be  under- 
taken.    In  some  form  its  cost  falls  on  the  public.^ 

Lawful  Pools  or  More  Consolidation.  —  With  several 
railroad  systems  serving  a  section  under  publicly  super- 
vised pools,  the  competition  remaining  would  doubtless 
be  better  for  the  people  than  entire  absence  of  direct 
competition  under  combination  of  all  the  systems  into 
one.  Between  the  larger  cities  there  are  still  from  two 
to  over  half  a  dozen  routes,  not  equally  good,  but  all 
able  to  compete.     A  really  competing  line,  though  weak 

iNewcomb,  47. 

''The  Low  Rates  Enjoyed  by  Competitive  Points  was  perhaps  the 
chief  cause  of  the  "  too  rapid  construction  of  railways  that  has  burdened 
the  country  with  many  unnecessary,  unprofitable,  and  bankrupt  lines."  It 
has  now  been  learned  that  with  competitive  lines  the  benefits  of  low  rates 
fall  to  the  few  towns  where  competition  is  sharpest,  and  there  in  greatest 
measure  to  the  few  shippers  whose  large  traffic  is  most  depended  upon,  ex- 
posing all  others  in  varying  degrees  to  blighting  discrimination.  By  reason 
of  its  attempt  to  preserve  competition  through  the  anti-pooling  clause,  the 
Inter-State  Law  has  mitigated  but  slightly  discrimination  between  shippers 
and  commodities  ;  and  has  almost  utterly  failed  to  stop  the  far  more  serious 
discrimination  against  towns  and  districts.  The  remedies  are  to  remove 
the  conflict  of  interest  between  railroads  by  allowing  pooling  ;  to  give  the 
orders  of  the  Commission  more  finality  ;  to  give  it  more  power  to  get  testi- 
mony and  details  of  railroad  accounting  ;  and  by  repealing  state  laws  against 
consolidation,  to  encourage,  recognizing  as  a  benefit,  and  directing  for  the 
public  good,  the  powerful  economic  force  that  is  harmonizing  and  unifying 
American  railroads  into  the  orderly  system  essential  for  cheapest  and  best 
service  to  the  public.  "  If  this  somewhat  radical  change  in  the  attitude 
toward  the  railway  monopoly  can  be  effected,  it  will  not  be  long  before 
favoritism  will  become  as  rare  in  railway  rates  as  in  the  rates  of  taxation." 
(H.  T.  Newcomb,  P.  S.  Quarterly,  1896,  p.  221.) 


200  The  Plain  Facts  as  to  the  Trusts. 

in  many  respects,  has  sometimes  conferred  incalculable 
benefit,  despite  monopolistic  agreements.  By  lowering 
rates,  the  Grand  Trunk  has  probably  saved  millions  of 
dollars  to  the  people  of  Michigan/  But  losses  of  excessive 
competition  are  unnecessary,  and  are  harmful  in  the  long 
run  to  those  who  at  first  gain.  Whatever  the  law  may 
be,  it  seems  that  these  losses  are  to  be  largely  eliminated 
from  business  in  general.  If  all  the  railroad  systems 
work  together  on  a  basis  of  just  rates  impartially  main- 
tained, the  people  will  fare  better  than  ever  heretofore 
under  greater  competition. 

The  Interest  of  These  Far-Sighted  Capitalists  in  Public 
Favor,  and  in  traffic-making  prosperity,  is  probably  too 
clear  now  to  admit  of  monopoly  oppression  ;  but  if  that 
is  attempted,  the  law  is  or  can  be  made  a  sufficient  cor- 
rective. Each  of  the  great  railway  owners  has  capital 
so  large,  is  so  independent  and  enterprising,  and  is  now 
strengthening  his  lines  with  such  splendid  equipment, 
that  to  utilize  capacity  a  good  measure  of  competition 
may  remain.  To  have  a  free  hand,  each  man,  or  each 
group  of  men,  must  control  a  system  that  is  more  or  less 
separate.  Already  there  have  been  reports  of  building 
of  branches  by  the  groups  into  one  another's  territory, 
and  of  "a  hostile  feeling  among  the  big  magnates."  It 
is  among  a  few  great  rivals  that  competition  may  be 
sharpest,  and  if  kept  reasonable  by  pooling  it  may  not 

*  Some  competition  seems  to  remain  desirable,  about  as  much  perhaps  as 
exists  among  separate  companies  operating  under  pools.  The  quotation  on 
page  20I  from  the  Inter-State  Commission  refers  to  a  raise  of  rates  occa- 
sioned by  consolidation.  The  rivalry  among  competing  lines  in  speed  and 
comfort  is  unquestionably  beneficial ;  and  the  presence  in  a  town  of  a  weak 
competing  company,  whose  freight  agents  are  ready  to  go  out  of  their  way 
to  serve  patrons,  has  a  noticeable  effect  on  the  accommodating  spirit  of 
agents  for  the  other  roads. 


TJie  Evil  of  Railroad  Coiupctition,  20 1 

lead  to  complete  monopolistic  consolidation.  Perhaps 
these  men,  already  immensely  rich,  are  drawn  forward 
less  by  money  gains  than  by  the  honor  and  satisfaction 
of  achievement.  With  legal  prevention  of  monopoly 
oppression,  their  field  in  which  to  achieve  will  be  the  ser- 
vice of  the  public* 

1  But  Stricter  Control  by  Law  Will  Now  Be  Required,  by  reason  of 
the  consolidating  movement.  Some  of  the  worst  abuses  in  railroad  service 
were  in  California,  where  there  was  practically  a  huge  monopoly.  [P.  S. 
Quarterly,  1892,  p.  162.)  The  Inter-State  Commission  said  last  year  it 
was  idle  to  claim  rates  would  not  be  advanced,  and  pointed  out  that  on 
Jan.  I,  1900,  by  change  of  classification,  rates  were  raised  in  818  cases  an 
average  of  35  per  cent — reduced  in  March  to  21  per  cent.  They  said  that 
railroads  "  cannot  be,  perhaps  ought  not  be,  brought  under  control  of  com- 
petition, but  those  very  conditions  make  it  imperatively  necessary  that 
some  other  control  should  be  substituted.  The  lessons  of  history  and  of 
human  nature  show  that  unlimited  power  brings  abuse."  In  their  report 
of  January,  1902,  the  Commission  ask,  in  view  of  the  proposed  permission 
of  pooling,  a  complete  revision  of  the  Inter-State  Law,  to  give  adequate 
control  of  rates  and  operation.  They  ask  also,  if  revision  is  to  be  further 
delayed,  that  the  coercive  features  be  strengthened,  to  prevent  the  flagrant 
violations. 

The  Present  Vigorous  Enforcement  of  Federal  Statutes. — In  Feb- 
ruary, 1902,  after  the  Inter- State  Commission's  searching  investigation  of 
discrimination  at  Chicago  and  other  cities,  and  in  view  of  the  recommen- 
dations for  new  law  by  it  and  by  the  Industrial  Commission,  the  railroad 
companies  were  said  to  be  obeying  the  laws  more  closely  than  usual.  In 
the  March  Forum  a  Louisville  and  Nashville  vice-president  argued  against 
granting  the  Inter-State  Commission  power  to  make  rates,  saying  that  it 
had  long  cherished  this  ambition,  and  that  the  present  law  would  be  ade- 
quate if  the  Commission  properly  enforced  it.  This  official  probably  had 
no  expectation  of  what  was  to  happen.  Beginning  about  March  i  the  fed- 
eral attorneys,  acting  under  instructions  from  President  Roosevelt,  whose 
zeal  in  such  matters  is  well  known,  have  been  carrying  out  the  strictest 
enforcement  yet  known  of  the  Inter-State  and  Sherman  anti-trust  laws.  For 
departing  from  published  rates,  a  federal  grand  jury  has  indicted  some  officials 
of  the  Louisville  and  Nashville,  and  other  persons  as  shippers  ;  while  on  offi- 
cials of  the  leading  roads  radiating  from  Chicago  and  Kansas  City  injunctions 
have  been  served  to  prevent  future  offenses.  The  railway  companies,  gain- 
ing the  rebates  not  yet  paid,  desiring  protection  from  one  another's  rate 
cutting,  and  being  relieved  to  some  extent  from  necessity  of  further  reduc- 


202  TJie  Plain  Facts  as  to  the  Trusts. 

tions,  have  even  favored  making  the  injunctions  permanent,  a  proceeding 
in  which  Judge  Grosscup  is  moving  cautiously,  since  it  would  put  railroad 
business  under  the  exceptional  power  of  a  court  in  cases  of  contempt. 
Within  three  weeks  480  notices  of  freight  rate  reductions  were  filed  by 
companies  not  daring  to  continue  them  secretly.  A  number  of  companies 
have  withdrawn  from  the  different  freight  and  passenger  associations,  but  it 
is  believed  these  will  not  be  dissolved,  as  was  necessary  with  the  Joint 
Traffic  and  Trans-Missouri  associations,  which  were  found  to  conflict  with 
the  Sherman  law.  The  pools  mentioned  on  a  previous  page  are  being  dis 
solved.  That  among  lines  east  of  Chicago,  said  to  have  been  the  strongest 
pool  ever  formed  in  this  country,  ceased  to  exist  April  i.  "  For  each  ton 
carried  in  excess  of  its  regular  quota,  each  road  paid  $\o  into  the  pool,  the 
total  of  which  was  then  divided  among  those  roads  which  did  not  come  up 
to  their  regular  shares."  By  the  present  enforcement  the  Inter-State  and 
Sherman  laws  will  be  given  a  good  trial,  and  if  they  prove  inadequate,  as 
they  probably  will  when  the  excitement  has  subsided,  the  way  will  be  more 
clear  for  the  revision  so  many  have  urged. 

Fear  of  Railway  Consolidation,  despite  its  advocacy  by  some  leading 
economists,  and  its  advantage  to  the  public  in  saving  of  competitive  waste, 
still  prevails  among  the  people  ;  though  some  associations  of  shippers  have 
petitioned  the  Governor  of  Minnesota  to  cease  opposing  consolidation  of 
the  Great  Northern  and  Northern  Pacific.  That  there  is  reason  for  this 
fear,  in  the  present  lack  of  law  for  effective  control,  may  be  seen  in  the  quo- 
tations just  given  above.  A  similar  case  of  consolidation  to  that  in  Minne- 
sota has  lately  been  mentioned  as  probable  in  Colorado,  another  case  with 
three  great  systems  extending  westward  from  Chicago,  and  another  case  in 
southern  Indiana.  Besides  Minnesota's  opposing  action  in  the  federal 
supreme  court  (dismissed  for  want  of  jurisdiction),  the  federal  attorney- 
general  is  now  taking  action  in  the  same  case  under  the  anti-trust  law  of 
1890,  an  investigation  of  the  case  has  been  held  by  the  Inter-State  Com- 
mission, and  proceedings  in  the  federal  supreme  court  have  been  opened  by 
the  state  of  Washington.  Governor  Van  Sant,  of  Minnesota,  is  also  pre- 
paring to  proceed  against  an  alleged  merger  of  the  iron  range  railroads  in 
his  state.  As  the  Northern  Securities  Company  was  chartered  by  New 
Jersey  with  unlimited  power  to  buy  and  hold  stock  in  railroads,  it  would 
seem  that  its  consolidation  of  the  two  systems  named,  by  buying  up  their 
stock,  would  be  allowed  to  stand,  despite  Minnesota's  laws;  but  some 
think  its  dissolution  by  the  courts  is  foreshadowed  by  the  decisions  against 
the  Joint  Traffic  and  Trans-Missouri  associations,  under  the  antitrust  law 
of  1890.  Attorney-General  Knox,  in  his  bill  asking  the  court  to  perpet- 
ually enjoin  the  Northern  Securities  Company  from  carrying  out  its  pur- 
pose, claims  it  was  not  formed  in  good  faith  to  buy  and  pay  for  stock,  but 
solely  as  the  machinery  for  the  merger  ;  that  it  gave  no  consideration  but 


The  Evil  of  Railroad  Competition.  203 

It  is  Impossible  to  Get  Rid  of  Competition  entirely,  A 
railroad  company  owning  every  line  in  a  large  district 
would  be  compelled  to  make  fair  rates,  by  the  fact  that 

its  own  shares  ;  and  that  its  $400,000,000  in  stock,  of  which  shares  to  the 
amount  of  only  $30,000  were  subscribed  for,  is  just  about  sufficient  to  ex- 
change for  the  stock  of  the  roads  to  be  consolidated. 

To  What  Will  It  Lead  ?— It  is  well  that  the  legality  of  this  latest  form 
of  consolidation  (far  more  effective  than  direct  purchase,  lease,  and  com- 
munity of  interest)  is  now  to  be  settled.  Its  possibilities  awaken  apprehen- 
sion. As  The  Independeiit  points  out,  a  half  dozen  such  stock-buying  com- 
panies could  soon  buy  controlling  shares  of  all  the  railroads  in  the  country, 
and  then  a  few  magnates  in  a  seventh  company  could  buy  a  controlling 
share  in  each  of  the  half  dozen,  and  thus  put  in  the  hands  of  one  board  of 
directors  a  complete  monopoly  of  all  our  transportation  by  rail,  which  could 
later  include  substantially  all  that  by  water.  Before  such  a  movement 
(possible  within  twenty  years)  had  been  completed,  government  control, 
now  growing,  would  have  to  be  enlarged  until  it  approached  actual  owner- 
ship, which,  though  dangerous  now,  might  possibly  prove  the  best  solution 
of  the  problem  if  grown  into  through  many  years.  (Newcomb,  135- )  A 
number  of  "  securities  companies"  are  said  to  have  been  already  formed, 
ready  to  begin  consolidations  if  the  Northern  company  is  permitted  to 
stand.  A  corporation  of  the  same  name,  lately  chartered  in  Canada,  is 
said  to  have  no  connection  with  the  American  concern.  A  merger  bill  that 
became  law  in  Iowa  in  April,  1902,  permits  consolidation  of  connecting  but 
not  of  parallel  lines.  The  Railway  Securities  Company,  organized  a  half 
year  before  the  Northern  and  the  Southern,  was  supposed  to  be  intended  to 
unite  the  Harriman  group  of  roads.  In  April,  1902,  J.  P.  Morgan  com- 
pleted a  consolidation  of  a  half  dozen  North  Atlantic  steamship  lines,  by 
means  of  a  holding  company  to  own  their  stock. 

The  Above  Look  Toward  Socialism,  however,  seems  unnecessary. 
While  admitting  the  evils  of  unregulated  competition,  the  force  behind  the 
consolidation  craze,  both  with  transportation  and  with  manufacturing,  seems 
to  be  mainly  a  hunger  for  the  power  of  monopoly  to  tax  the  people  for  pri- 
vate gain.  There  is  no  lack  of  remedies  for  the  trouble,  most  of  which 
are  enumerated  in  this  book.  The  people  will  have  only  themselves  to 
blame,  not  nature,  if  they  fail  to  turn  the  corporations  quickly  from  their 
present  carnival  of  greed  and  feudal  power,  promoted  by  the  people's 
ignorance  and  apathy,  into  a  field  of  reasonably  paid  service  to  the  public, 
whose  benefit  was  in  earlier  times  the  expressed  reason  for  chartering  them. 
The  consolidating  movement  among  railways  may  practically  cease,  as  it 
has  in  England,  when  we  have  a  better  understanding  of  conditions  by 
the  public,  better  legal  regulation,  and  a  more  settled  system  of  industry. 


204  The  Plain  Facts  as  to  the  Trusts. 

if  it  did  not  its  patrons  could  not  ship  products  outward 
in  competition  with  other  districts  enjoying  rates  that 
were  lower.  Its  patrons  would  then  be  unable  to  buy- 
goods  to  bring  inward.  A  company  owning  every  road 
in  America  would  be  similarly  affected.  If  it  attempted 
monopoly  oppression,  Europe  would  buy  more  grain  and 
meat  of  Argentina  and  Australia,  and  the  railroad  would 
be  harmed  no  less  than  its  patrons.  The  ocean,  like  in- 
land rivers  and  lakes,  will  always  afford  means  of  com- 
peting with  railroads.  Western  freight  rates  are  about 
two  cents  lower  on  grain  for  export,  because  at  the 
higher  rate  foreigners  might  not  buy.  This  degree  of 
discrimination  seems  allowable  if  applying  the  lower  rate 
to  all  grain  would  reduce  railway  profits  too  low.  It  is 
mainly  the  rivalry  of  New  York,  Boston,  Philadelphia, 
and  Baltimore,  each  striving  to  increase  its  export  trade, 
not  competition  among  roads  doing  the  carrying,  that 
has  made  through  freights  so  low  as  they  are. 

This  Competition  Among  Producers,  which  reaches 
every  place  and  every  person,  is  a  strong  guarantee 
against  excessive  freight  charges.  In  the  dependence  of 
a  railroad  upon  the  prosperity  of  its  patrons,  it  is  forced 
by  its  own  self-interest  to  aid  them  with  the  reasonable 
rates  required  by  their  business  necessities.  Both  the 
producers  of  the  interior,  and  the  boards  of  trade  in  the 
cities,  press  for  the  lowest  rates  possible.  In  few  cases 
have  railroad  managers  been  so  short-sighted  as  to  fail 
to  develop  supporting  territory.  They  are  especially 
quick  to  lower  rates  when  the  traffic  of  a  place  is  falling 
off.  It  is  competition  without  pools  between  roads  con- 
necting the  same  places  that  has  favored  competing 
points  unfairly,  against  the  greater  number  of  stations 
having  but  one  road.     With  all  the  roads  of  the  country 


The  Evil  of  Railroad  Competition.  205 

harmonized  together  as  if  they  were  one  perfected  sys- 
tem, there  could  be  the  least  waste  of  competition,  and 
the  nearest  approach  to  just  rates  for  every  place  and 
every  commodity,  causing  the  production  of  every  place 
to  be  of  the  kind  and  extent  for  which  it  was  best  suited, 
and  giving  the  maximum  return  for  the  people's  produc- 
tive effort. 

The  People's  Share  in  Railroad  Progress. — Competition 
among  many  railroads,  and  many  rich  districts,  with 
rapid  improvement  of  appliances,  has  given  America  the 
lowest  rates  and  the  best  service  in  the  world. ^  Dis- 
crimination in  rates  and  service  has  injured  towns  and 
individuals,  but  from  it  the  pubHc  is  beginning  to  under- 
stand the  situation.  Only  from  experience  can  people 
learn,  and  experience  is  but  natural  when  it  includes 
losses.  In  the  aggregate  the  losses  and  their  injustice 
have  been  fearful,  reaching  their  worst  in  the  Standard 
Oil  discriminations  of  1874-86,  and  in  the  wasteful  con- 

1  The  Fall  in  Freight  Charges  During  the  Last  Thirty  Years,  de- 
spite the  rise  in  railway  wages,  has  been  greater  than  the  fall  in  prices  of 
important  commodities  carried,  much  greater  than  the  decline  in  price  of 
wheat,  which  is  now  about  half  what  it  was  then.  The  causes  of  lower 
freights  include  steel  rails  and  larger  rolling  stock,  uniform  gauge  and  trans- 
fer of  cars,  through  billing,  and  reduction  of  capital  charges  by  renewing 
bonds  at  lower  interest,  and  by  wiping  out  a  part  of  the  capital  stock  of 
bankrupt  roads  through  foreclosure  and  reorganization.  The  gold  rate  on 
dry  goods  from  New  York  to  Chicago  fell  from  ^1.37  in  1S67  to  50c.  in 
1897  ;  on  sugar  from  60c.  to  24c.,  and  on  soap  from  93c.  to  25c. 

A  Fall  in  Railroad  Profits  has  not  been  prevented  by  the  increase  of 
traffic  obtained  through  lowering  rates.  Cost  of  operation  was  65  per  cent 
of  gross  earnings  in  1873,  58  in  1880,  68  in  1890,  70  in  1896,  69  in  1900. 
Dividends  per  mile  of  road  averaged  ^1,132  in  1 87 1,  ^1,004  in  1881,  ^450 
in  1S96,  $592  in  1899.  Interest  on  bonds  increased  from  ^1,242  per  mile 
of  road  in  1881  to  ;^l,402  in  1896.  In  the  New  England  states  in  1896, 
a  year  of  depression,  dividends  were  paid  on  79  per  cent  of  total  stock, 
and  interest  on  all  bonds  except  2  per  cent,  but  in  the  states  west  of  the 
Rockies  dividends  were  paid  on  only  2  per  cent  of  total  stock,  and  interest 


206  The  Plain  Facts  as  to  the  Trusts. 

struction  and  stock  watering  of  1869-74,  and  1879-S4. 
Better  supervision  by  state  boards  and  by  the  Inter-State 
Commission,  with  reports  giving  increasing  publicity, 
will  doubtless  secure  to  the  public  its  share  of  the  bene- 
fits of  future  improvement.  Hereafter  it  will  hardly  be 
possible  to  keep  up  rates  unduly  by  hiding  gains  through 
stock  watering  and  crooked  book-keeping.  Railroads 
will  be  allowed  good  profits  in  good  times,  like  other  kinds 
of  business  ;  and  to  promote  progress  in  their  service, 
they  will  be  allowed  a  good  share  of  the  gains  arising 
from  improvement  of  appliances  and  from  growth  of  the 
country. 

The  Situation  Seems  Not  at  all  Discouraging  to  a  public 
possessing  intelligence  and  purpose.  A  more  favorable 
experience  could  not  have  been  expected  in  the  rapid 
growth  of  the  last  thirty  years.  Since  1893  there  has 
been  a  decided  change  for  the  better.  Management  of 
railroads  has  been  settling  down  to  a  sound  and  paying 
basis ;  responsible  owners  are  endeavoring  to  abolish 
evils  ;  waste  of  capital  in  useless  construction  has  ceased  ; 
growth  of  the  country  has  afforded  business  to  lines 
built  too  soon  ;  and  the  fact  that  the  interests  of  the 
shipper  and  the  railroad  become  the  same  in  the  long 

was  not  paid  on  25  per  cent  of  the  bonds.  Taxes  in  1S96  took  12.37  per 
cent  of  net  earnings  in  New  England,  and  11.68  per  cent  west  of  the 
Rockies.  Chicago  and  Alton  taxes  took  4.24  per  cent  of  net  earnings  in 
1880,  but  11.27  P^r  cent  in  1896.  During  the  four  years  ending  with 
1897,  38,879  miles  of  road,  with  capital  at  par  of  $2,748,847,000,  were 
sold  under  foreclosure  for  non-payment  of  interest  on  bonds.  (Newcomb, 
57,  144.)  Since  1898  the  railroad  business  has  greatly  improved.  Dur- 
ing the  four  years  beginning  with  that  year  only  14,964  miles  were  sold 
under  foreclosure  (1,139  in  1901).  Dividends  per  mile  rose  10^725  in 
1900,  considerably  higher  perhaps  in  I901  ;  and  interest  per  mile  fell  in 
1900  to  $1,302.  In  1902  many  companies  are  paying  dividends  that  have 
not  done  so  heretofore,  and  from  the  few  foreclosures  it  is  evident  that  but 
little  interest  is  not  being  paid. 


Tlie  Evil  of  Railroad  Conipctitiojt.  207 

run  is  every  day  more  fully  realized.  Those  who  still 
denounce  railroads  do  so  in  ignorance  of  progress  for  the 
better/ 

IF.  H.  Dixon,  P.  S.  Quarterly,  1899,  p.  328. 

Commendable  Effort  to  Build  Up  Supporting  Territory  is  now 

maintained  by  many  well  managed  railroad  companies,  in  recognition  of  the 
fact  that  the  surest  way  to  get  and  hold  business  is  to  increase  the  number 
and  prosperity  of  patrons.  The  Baltimore  and  Ohio,  whose  lines  lie  in  the 
old  states,  has  no  land  to  sell,  yet  it  has  maintained  a  land  department,  to 
supply  information  and  bring  settlers  to  further  develop  its  territory.  The 
Chicago  and  Alton  is  soon  to  establish  an  industrial  bureau,  to  secure  new 
industries  along  its  lines.  Western  roads  have  lately  made  a  practice  of 
giving  low  rates,  and  of  advertising  in  the  cities,  to  secure  for  farmers  west 
of  the  Missouri  the  help  they  need  to  harvest  their  crops.  The  Santa  Fe 
Company  in  August,  1 901,  gave  an  emergency  rate  on  corn,  deducting  a 
third,  to  enable  stockmen  in  Kansas  to  avoid  sacrificing  their  cattle  and 
hogs  on  a  glutted  market.  As  a  rule,  any  progressive  railroad  company 
will  now  deal  liberally  with  a  new  industry  on  its  line,  in  building  spur 
tracks,  and  in  granting  low  rates  necessary  for  its  success.  The  Illinois 
Central  carries  breeding  stock  free,  and  by  operating  a  "goods  roads" 
train,  to  exhibit  improved  methods,  has  given  an  impetus  to  road  making 
in  Mississippi. 


CHAPTER  IX. 

THE    TRUSTS    AND    THE    FUTURE    OF    SOCIETY. 

No  War  on  Corporations. — Not  much  of  the  monopoly 
that  has  agitated  the  pubhc  mind,  as  indicated  in  Chapter 
VII.,  is  of  the  proper  and  necessary  kinds.  The  rest  is 
usually  harmful  to  the  people,  and  not  to  be  passively 
tolerated.  Yet  in  opposing  weak  submission  to  monopoly 
trusts,  there  is  to  be  no  war  on  corporations.  The  cry 
against  them  has  seldom  proceeded  from  cool-headed 
people.  Any  one  who  stops  to  think  knows  that  corpo- 
rations are  necessary  for  the  great  enterprises  of  modern 
times.  Under  a  corporation  a  manager  dying  is  at  once 
replaced  without  interruption  of  business  ;  and  a  part 
owner  of  the  property,  which  is  divided  into  convenient 
shares,  can  sell  his  interest  at  any  time.  An  individual 
or  partnership  cannot  so  well  gather  the  large  capital 
and  varied  ability  easily  obtained  by  a  corporation,  nor 
go  ahead  in  business  with  the  boldness  derived  by  a  cor- 
poration from  the  limited  liability  of  its  stockholders. 
If  it  fails,  no  one  of  them  need  be  ruined,  having  lost 
only  the  money  he  has  paid  for  his  shares  (if  paid  up  to 
full  par  value).  Very  different  is  the  case  where  there  is 
no  corporation.  It  was  the  unlimited  liability'  of  a  partner 
for  all  the  debts  of  a  firm,  though  incurred  in  each  case 
by  other  partners,  that  caused  Sir  Walter  Scott  and 
Mark  Twain  each  to  spend  years  of  labor,  late  in  life,  to 
pay  off  a  great  personal  debt.^ 

'  Limited  Liability  was  found  necessary,  about  sixty  years  ago,  to  get 
from  small  investors  the  capital  then  required  for  railroads  and  other  large 

208 


TJie  Trusts  and  the  Future  of  Society.  209 

Neither  on  Corporations  that  are  Large  will  war  be 
waged.  They  need  not  be  soulless  if  they  attempt  to 
override  no  laws,  and  are  contented  to  advance  in  wealth 
by  deserving  patronage/  J.  Pierpont  Morgan  has  the 
right,  if  he  can  raise  the  money,  to  buy  all  the  railroads 
and  steel  works  in  America,  and  then  to  go  abroad  and 
buy  up  the  British  Empire.  While  enormous  wealth  in 
a  few  hands  gives  a  power  dangerous  to  the  common 
weal,  and  needs  to  be  checked  in  its  accumulation  by 
income  and  inheritance  taxes  similar  to  those  of  Great 
Britain  and  Germany,  nature  has  provided  safeguards 
here  as  in  other  respects.  Outside  of  the  field  naturally 
monopolistic,  if  harmful  monopoly  power  is  taken  away 

enterprises.  These  people  needed  openings  to  invest  savings,  but  having 
no  part  in  management  they  could  not  take  risk.  Persons  selling  goods  to 
a  corporation  know  its  condition  better  than  they,  and  the  probability  of  its 
non-payment  of  debts.  Stockholders  are  scattered  over  the  country,  far 
from  the  company's  office.  That  a  stockholder,  after  losing  money  paid 
for  shares,  should  then  lose  all  his  other  property,  in  order  that  a  creditor 
might  lose  nothing,  is  obviously  unjust.  (Iladley,  Railroads,  47.)  Lia- 
bility still  rests  upon  bank  stockholders,  to  the  extent  of  being  required  to 
pay  for  their  stock  a  second  time.  The  suggestion  to  curb  the  power  of 
trusts  by  making  stockholders  liable  as  partners  would  stop  the  wheels  of 
industry. 

1  Are  Trusts  Simply  Large  Corporations  ? — Some  writers  speak  of 
trusts  in  general  as  "large  corporations,"  as  if  it  were  largeness  instead  of 
scheming  for  monopoly  that  makes  them  trusts.  Many  an  independent  cor- 
poration that  serves  the  people  well,  at  lowest  prices,  is  larger  and  richer  than 
many  another  monopoly  trust.  Because  modern  production  required  the 
change  from  individual  and  partnership  business  to  corporations,  it  does  not 
follow,  as  some  teach,  that  it  required  a  change  from  ordinary  corporations 
to  monopoly  trusts.  An  interesting  article  by  Rev.  Sam  Jones,  the  noted 
evangelist,  published  in  1900,  was  a  defence  of  large  corporations.  They 
need  no  defence.  Any  community  would  be  glad  to  have  the  Pennsylvania 
Company  buy  its  little  local  railroad,  or  the  Standard  Oil  Company  to  open 
a  tank  station,  if  the  intention  was  to  sell  oil  by  permanently  offering  best 
value.  It  would  be  glad  also  to  have  a  large  corporation  buy  its  struggling 
factory  if  the  intention  was  to  get  profit  by  operating  it,  not  by  closing  it  to 
establish  a  monopoly. 
14 


2 1  o  The  Plain  Facts  as  to  the  Trusts. 

by  law  and  public  opinion,  the  vast  combination  will 
almost  certainly  require  too  much  high-salaried  superin- 
tendence to  produce  goods  cheaply,  and  will  conse- 
quently separate  into  smaller  concerns  under  manage- 
ment more  closely  personal  ;  or  more  likely,  it  will 
continue  united,  but  become  in  time  only  one  among  a 
number  of  producers/ 

1  Income  and  Inheritance  Taxes. — In  1901  the  estate  of  Daniel  Scot- 
ten,  of  Detroit,  was  required  to  pay  $45,240  on  $900,000  he  had  left  on 
deposit  in  Canada  from  the  time  of  the  silver  panic  of  1896.  New  York 
state's  succession  tax  yields  hundreds  of  thousands  of  dollars  from  such 
estates  as  C.  P.  Huntington's  $70,000,000,  and  Cornelius  Vanderbilt's 
$50,000,000  or  more.  The  estate  of  the  latter  paid  $361,803  to  the  United 
States,  and  $520,998  to  the  state  of  New  York.  The  United  States  had 
an  income  tax  from  1862  to  1872,  which  proved  unsuccessful.  Since  1898 
it  has  taxed  personal  property  succession  of  over  $10,000  3^  per  cent  when 
going  to  nearest  relatives,  and  5  per  cent  when  going  to  strangers  (char- 
itable bequests  exempted).  In  New  York  and  Illinois  the  state  succession 
tax,  added  to  the  federal,  amounts  to  20  per  cent  on  very  large  estates 
passing  to  strangers  or  distant  relatives.  (Ely,  265.)  The  United  States 
income  tax  of  1894,  levying  2  per  cent  on  incomes  above  $4,000  a  year, 
was  declared  unconstitutional.  Massachusetts,  Virginia,  and  North  Caro- 
lina have  long  levied  income  taxes,  but  with  slight  success.  Several  other 
states  have  repealed  income  and  legacy  tax  laws.  But  income  and  succes- 
sion taxes  will  probably  become  general  in  America.  They  are  favored  by 
many  influential  economists,  and  are  becoming  popular  with  the  public  as  a 
means  of  equalizing  tax  burdens.  To  the  federal  income  tax  of  1894  there 
was  strong  support  in  both  parties  except  in  a  few  large  cities.  In  Mich- 
igan, which  has  a  new  tax  on  inheritances,  the  legislature  of  1901  discussed 
a  tax  of  I  per  cent  on  income  above  $1,000.  The  same  year  a  new  law 
taxing  incomes  was  enacted  by  North  Carolina.  Many  of  the  states  now 
have  inheritance  taxes,  increasing  usually  with  the  value  of  the  estate,  as 
does  the  federal  inheritance  or  succession  tax,  which  is  multiplied  by  three 
for  estates  exceeding  $1,000,000.  The  Industrial  Commission  has  just 
recommended  that  this  federal  tax  be  repealed,  but  that  all  the  states  levy 
a  graduated  tax  on  both  inheritances  and  incomes.  Income  and  inheri- 
tance taxes  are  well  settled  in  Europe.  In  1900  income  taxes  yielded  27 
per  cent  of  British  revenue,  and  taxes  on  intoxicants  33  per  cent.  Of  the 
British  government's  total  revenue  in  1901  of  about  $760,000,000,  the  in- 
come tax  yielded  about  $175,000,000,  and  showed  that  in  a  year  taxable 
incomes  had  increased  by  $300,000,000.     The  proposed  increase  of  this 


The  Trusts  and  the  Future  of  Society.  2 1 1 

How  Far  Will  the  Trusts  Carry  us  Toward  Socialism  ? 

The  talk  of  the  trust  movement  leading  on  to  gov- 
ernment ownership  of  railroads,  and  eventually  to  social- 
istic state  production  in  general,  must  be  based  on  the 
idea  that  the  American  people  can  easily  be  made  to  sur- 
render to  monopoly.  Just  the  opposite  now  seems  true. 
It  is  the  monopolistic  trust  that  can  easily  be  made  to 
surrender. 

Society's  Control  of  Industry  in  the  Middle  Ages, 
when  wages,  prices,  and  choice  of  occupations  were  rig- 
idly limited  by  law  and  custom,  has  never  been  relin- 
quished. It  was  relaxed,  and  regulation  entrusted  to 
competition,  because  with  increase  of  general  intelligence 
and  liberty,  enabling  each  for  himself  to  produce  and 
buy  to  best  advantage,  it  was  found  that  under  compe- 
tition supplies  were  improved  and  cheapened.  In  pro- 
tax  by  an  extra  penny  on  the  pound  is  but  little  opposed.  The  annual 
total  of  Prussia's  income  tax,  which  reaches  incomes  as  low  as  ^215,  has 
increased  46  per  cent  in  the  ten  years  of  its  operation.  Both  inheritance 
and  income  taxes  are  of  special  importance  now,  to  check  and  gradually 
remove  the  monopolizing  tendencies  of  the  times.  Slight  changes  of  this 
kind  make  a  decided  difference  in  less  than  a  century,  as  shown  by  the 
division  of  France  into  small  farms  under  many  owners,  caused  by  a  law 
equalizing  division  of  estates  among  children. 

Meeting  the  Millionaire  Menace  by  making  the  tax  higher  as  income 
increased  would  need  to  be  done  guardedly.  An  income  tax  rising  materi- 
ally might  be  so  evaded  as  to  yield  but  little.  Besides,  if  monopolistic 
abuses  were  removed,  men  could  increase  their  millions  only  by  rendering 
to  society  a  good  return.  Limiting  their  wealth  might  then  be  limiting 
their  service.  With  ruling  opinion  honest  and  intelligent,  increase  of 
wealth  without  commensurate  increase  of  service  might  not  be  possible 
or  profitable.  Hitherto,  but  mainly  because  of  easy  opportunities  afforded 
by  the  people's  ignorance,  many  of  the  largest  fortunes  have  been  made  by 
means  of  unjust  monopoly  and  privilege.  Yet,  while  3,828  millionaires 
own  a  fifth  of  the  wealth  in  the  United  .States,  87  per  cent  of  them  built 
their  own  fortunes,  many  of  them  from  the  bottom  (New  York  Herald). 
The  service  to  society  of  owning  needed  things  is  real  and  important.  The 
speculator's  profit  is  his  pay  for  carrying  the  surplus  of  wheat ;  rent  is  pay 


212  TJic  Plain  Facts  as  to  the  Trusts. 

moting  invention,  and  progress  of  many  kinds,  the  system 
of  unrestricted  capitalistic  production  has  worked  well. 
Until  the  recent  period  of  monopolistic  consolidation, 
the  only  grave  fault  to  be  noticed  against  the  capitalistic 
system  was  its  causing  of  widespread  suffering  in  hard 
times  by  previous  speculative  building  and  overproduc- 
tion. To  captains  of  industry  the  getting  of  a  living  for 
society  is  entrusted.  All  others  follow  them,  lending 
capital  to  them,  and  working  for  them  as  they  direct. 
For  their  leadership  society  pays  them  well  in  profits. 
But  too  often,  not  regarding  their  public  trust,  they  have 
recklessly  taken  chances  in  borrowing,  building,  and  pro- 
ducing, until  their  extreme  of  activity  has  broken  in  re- 
action to  an  extreme  of  dullness,  bringing  long  continued 
blight  upon  the  people  as  a  whole.      More  than  they 

for  carrying  the  value  attaching  to  land.  The  state  would  have  to  invest 
wealth  in  land  if  individuals  could  not.  The  great  fortunes  have  come 
from  America's  rapid  growth,  increasing  values  of  land,  minerals,  and  tim- 
ber, and  giving  princely  rewards  to  foresight  applied  to  improvements  in 
producing  and  serving.  Proper  fortune  making  and  progress  go  together. 
The  former  would  be  checked  with  the  latter.  A  list  of  about  4,000  mill- 
ionaires, giving  name,  home  city,  and  occupation  of  each,  but  not  his  for- 
tune, is  published  in  the  World  Almanac  for  1 902.  Funk  &  Wagnall's 
Encyclopedia  of  Social  Reform  gives  the  sources  of  the  fortunes  of  4,047 
millionaires  in  1892.  New  Zealand's  tax  on  incomes  above  ;if5,ooo  (5  per 
cent)  is  double  the  tax  on  those  below,  except  with  corporations,  all  of 
which  must  pay  the  high  rate.     Britain's  general  rate  is  6  per  cent. 

New  Zealand's  Rising  Land  Tax,  by  which  she  breaks  up  large 
estates  and  settles  the  people  on  farms,  may  become  necessary  in  America 
if  a  practice  arises  among  millionaires  of  buying  up  tens  of  thousands  of 
acres,  to  form  such  estates  as  that  of  George  Vanderbilt  in  North  Carolina, 
and  that  of  Austin  Corbin  in  New  Hampsliire.  Under  this  scale  of  land- 
holding  the  local  people  tend  to  fall  under  feudal  dependence.  Vast  un- 
settled areas,  and  lack  of  profit  in  farm  land,  have  saved  America  from  this 
form  of  monopoly,  though  in  the  West  and  South  some  large  areas,  oc- 
cupied by  farm  tenants,  are  owned  by  land  companies  and  by  wealthy  men 
in  Europe ;  and  a  few  other  home  millionaires  have  followed  Mr.  Vander- 
bilt's  example  in  buying  land  not  specially  valuable  for  minerals  or  timber. 


TJie  Trusts  a7id  the  Futiwe  of  Society.  2 1 3 

realize,  capitalists  are  responsible  for  keeping  workers 
employed  and  the  public  supplied. 

Where  Capitalism  is  Found  Wanting. — Speculative  pro- 
moters, rather  than  real  leaders  of  industry,  seem  to  have 
been  the  men  chiefly  in  fault.  The  latter,  who  serve 
society,  are  often  displaced  by  bold  stock  gamblers,  who 
enrich  themselves  at  society's  loss.  The  remedy  for  this 
evil  of  stock  jobbing  is  an  increase  of  honesty  in  busi- 
ness. Law  cannot  well  separate  the  gambling  from  the 
useful  speculation  that  carries  necessary  risks,  and  fore- 
casts the  amount  of  future  supplies  by  the  barometer  of 
price.  Reliance  can  be  placed  only  on  public  opinion 
among  men  of  influence  in  trade.  If  they  will  not 
accept  the  responsibility  which  goes  with  power,  they 
must  expect  to  be  deprived  of  both  by  a  movement  in 
the  direction  of  socialism.  Such  a  movement  is  being 
aided  by  every  financier  who  neglects  his  company  to 
speculate  for  himself,  by  every  lawyer  who  teaches  his 
clients  to  evade  responsibilities,  and  "  by  every  one,  in 
short,  who  forgets  that  under  the  existing  system  the  pos- 
session of  money  involves  a  public  trust,  with  whose  ful- 
filment or  non-fulfilment  that  system  must  stand  or  fall."  ^ 

Capitalists  Will  be  Held  Responsible. — Now  if  captains 
of  industry  will  eventually  be  held  responsible  for  disre- 
gard of  the  people  in  ordinary  speculation,  much  sooner 
will  they  be  called  to  account  for  such  as  the  present 
attempts  to  rob  the  people  through  monopoly.  Unques- 
tionably, if  adequate  supplies  at  reasonable  prices  were 
not  forthcoming,  society  would  soon  find  a  way,  despite 
objection  to  socialistic  methods,  to  require  capitalists  to 
serve  the  public  or  get  out  of  business.^ 

iHadley,  120. 

2  '*  Necessaries  like  iron,  coal,  and  sugar  may  pass  under  semi-monopo- 


214  1^^^^  Plain  Facts  as  to  the  Trusts. 

There  Will  be  No  Curtailment  of  Rights,  if  practices 
manifestly  unjust  are  given  up.  As  heretofore,  it  seems, 
capitalists  will  be  permitted  to  buy  up  and  centralize 
without  let  or  hindrance,  and  to  join  many  kinds  of  busi- 
ness in  one  concern,  at  least  by  means  of  branch  cor- 
porations. No  reason  appears  why  capitalistic  produc- 
tion, under  public  control  of  monopoly,  should  not 
continue  to  give  society  the  best,  cheapest,  and  most 
rapidly  improving  supplies.  Beneficent  progress  during 
the  last  century  has  been  wonderfully  rapid  under  the 
system  of  separate  competitors,  but  if  trusts  can  improve 
on  it  they  will  be  welcomed.  It  is  to  be  hoped  the 
Standard  Oil  Company's  reported  300  by-products,  such 
as  axle  grease  and  vaseline,  can  be  increased  to  600. 
Reward  for  such  an  increase  will  cheerfully  be  paid,  to 
the  extent  of  raising  profits  of  ^48,000,000  to  ;^96,ooo,- 
000.  Too  many  good  things  cannot  be  extracted  from 
petroleum  ;  nor  can  cost  of  an  article  be  made  too  low 
by  cutting  ofif  such  items  as  advertising,  and  the  wastes 
of  cut-throat  competition.  Even  private  ownership  of 
mines  may  long  remain  unimpaired,  if  it  is  used  to  serve 
society,  not  to  rob  it.  But  after  service  the  line  will  be 
drawn.  There  it  is  that  rights  cease.  Clubbing  will  not 
long  be  tolerated  in  this  country.  That  belongs  to 
Macedonian  brigands. 

The  Trusts  That  Are  "Wanted. — We  want  those  trusts 
that  hold  their  position  solely  by  reason  of  surpassing 
excellence  and  cheapness  of  product.  These  trusts  are 
only  too  few,  if  they  exist  at  all.  But  the  club-wielding 
monopoly  trusts,  formed  to  squeeze  consumers,  will  dis- 

listic  control  so  delicately  related  to  public  need  that  the  term  '  private  cor- 
poration'  can  no  longer  apply."  (John  Graham  Brooks,  Engineering 
Magazine,  Dec.  1899.) 


Tlie  Trusts  and  the  Future  of  Society.  2 1 5 

cover  that  the  people  are  not  so  helpless  as  they  seem. 
Their  power  to  restore  just  conditions  will  appear  when 
they  comprehend  clearly  what  the  monopoly  trusts  have 
undertaken  to  do.  From  the  survey  in  these  chapters  of 
the  trust  situation,  it  does  not  seem  that  radical  action 
will  be  necessary  to  dispose  of  them.  Managers  of 
trusts  will  then  realize  quickly,  perhaps  with  voluntary 
obedience  to  the  public  will,  that  now  and  hereafter,  as 
always  heretofore,  private  property  and  capitalistic  pro- 
duction, to  continue  to  exist  unimpaired,  must  prove  to 
be  the  best  system  by  service  to  society.  Limiting  the 
capital  of  corporations,  and  the  kinds  of  business  in 
which  they  may  engage,  as  some  economists  have  pro- 
posed, will  apparently  be  postponed  until  the  trust  proves 
how  far  honest  methods  will  maintain  a  monopoly.  It 
is  doubtful  if  such  limitations  will  ever  be  necessary  apart 
from  the  ownership  of  natural  monopolies,  such  as  mines ; 
though  purchase  of  controlling  shares  in  other  corpora- 
tions for  monopoly  consolidation,  as  with  the  Northern 
Securities  Company,  may  have  to  be  checked.  This  makes 
monopoly  too  easy  to  acquire.  In  some  states  a  cor- 
poration is  not  permitted  to  own  stock  in  another.^ 

iThe  Delay  in  Controlling  Trusts. — That  the  delay  in  controlling  the 
trusts  is  permitting  serious  hann  was  the  opinion  expressed  by  Professor 
Bullock  in  the  June  Atlantic.  He  is  evidently  correct.  Many  a  consumer 
has  a  personal  idea  of  losses  from  monopoly  prices,  while  society  is  doubt- 
less harmed  far  more  by  the  addition  of  tens  of  millions  to  the  fortune  of 
many  a  monopolist  from  profits  surpassing  the  wildest  dreams  of  avarice. 
"  With  them  stock  manipulation  has  ceased  to  be  speculative.  Their  re- 
sources are  so  vast  that  they  need  only  to  concentrate  on  any  given  property 
to  do  with  it  as  they  please.  .  .  .  There  is  an  utter  absence  of  chance  that 
is  terrible  to  contemplate."  (Henry  Clews.)  The  larger  the  fortune, 
perhaps  reaching  $500,000,000  with  Mr.  Rockefeller  when  stock  values 
are  higliest,  the  smaller  the  combination  necessary  to  buy  a  monopoly  of 
one  of  nature's  limited  stores.     The  present  formidable  power  of  monopoly 


2i6  The  Plain  Facts  as  to  tJic  Trusts. 

The  Benefits  of  Competition  will  Continue. — Production 
at  lowest  cost  will  require  an  immense  plant  in  steel 
manufacture,  and  operation  on  a  large  scale  may  be 
advantageous  in  many  industries.  There  will  be  little 
complaint  of  this  if  goods  are  thereby  made  better,  and 
cheaper  to  consumers.  Capital  and  business  ability  are 
watching  for  opportunities  to  build  all  needed  competi- 
tive establishments  of  every  grade,  up  to  the  class  in 
which  size  is  largest.  When  they  are  competitive  there 
will  be  persistent  effort  to  devise  improvements,  as  here- 
tofore ;  and  competition  may  be  strongest  among  only  a 
few  if  they  be  well  matched.  But  the  motive  to  improve 
is  usually  lacking  under  monopoly.  Monopoly  is  desired 
because  it  holds  trade  without  improving  quality  or  low- 
ering price.  Still  is  it  true  that  competition  is  the  life  of 
progress  in  industry.  It  does  not  induce  lowering  of 
quality  where  excellence  is  desired  ;  because  there  repu- 
tation is  too  valuable  to  be  risked  by  a  producer  who 
hopes  to  remain  in  business.  It  is  potential  competition, 
from  new  concerns  that  might  be  started,  with  actual 
competition  with  other  kinds  of  business  in  a  race  of 
progress  before  the  public,  that  has  given  largest  success 

is  but  a  natural  consequence  of  the  riotous  success  it  has  long  been  permitted 
to  enjoy. 

Why  the  Law  Has  Been  Ineffective. — But  more  effective  effort  to 
control  the  trusts  could  not  have  been  expected  from  the  public  opinion  of 
the  times.  It  has  been  contented  with  faulty  ideas  of  economics,  and 
has  not  frowned  upon  widespread  scheming,  in  various  forms,  to  obtain 
gain  at  the  loss  of  others.  Yet  in  time  monopoly's  cup  will  be  full.  The 
many  corporate  abuses  that  have  caused  grave  concern  over  the  future  of 
society  cannot  continue  when  the  people  realize  how  lax  are  our  laws,  and 
how  many  proved  methods  of  control  we  have  not  yet  applied.  Indications 
are  that  the  power  of  protected  industries  to  make  their  own  tariffs  will  be 
tested  soon  as  never  heretofore  in  this  generation.  Beneficent  forces  in 
society  are  provided  by  nature.  To  know  and  apply  them  is  the  task  laid 
upon  the  people. 


The  Trusts  and  the  Future  of  Society.  2 1 7 

to  those  trusts  whose  profit  comes  from  economies  low- 
ering cost  rather  than  from  increase  of  prices.  These 
economies  would  doubtless  be  lessened  as  a  monopoly 
became  better  established,  with  less  to  fear  from  poten- 
tial competition  and  public  disfavor/ 

Has  Enlargement  of  Factories  Pteached  its  Limit?  — 
Very  probably  increase  in  size  of  factories  for  reducing 
cost  of  product  had  about  reached  its  limit  with  present 
machinery  before  the  later  monopoly  trusts  appeared. 
Where  the  motive  in  forming  them  was  monopoly,  it 
differed  from  the  motive  of  previous  enlargement,  which 
was  economy.  Previous  enlargement  made  monopoly 
easier,  by  reducing  the  number  of  competitors.  Where 
necessity  of  large  capital  is  connected  with  limited 
sources  of  materials,  as  in  steel  making,  the  business  is 
naturally  monopolistic.      Here  producers  easily  consoli- 

^  What  Competition  Does. — Economists  agree  that  competition  among 
buyers  raises  the  fanner's  price  of  raw  material,  and  that  among  sellers  it 
lowers  price  to  consumers,  enabling  more  of  them  to  buy  ;  that  it  increases 
production  to  supply  the  extra  demand,  gives  thus  employment  to  more 
men,  raises  thus  their  wages,  elevates  laborers  with  more  to  spend  and 
lower  prices,  stimulates  producers  to  improve  quality  and  invent  machinery, 
and  hence  promotes  the  welfare  of  all  classes  and  of  the  state.  Economists 
agree  also  that  in  all  these  cases  monopoly  has  by  nature  the  opposite  effect, 
and  that  if  general  and  prolonged,  would  tend  to  impoverish  and  degrade 
the  people,  and  to  debilitate  the  state.  (Quoted  at  length  from  General 
Roger  A.  Pryor  by  Von  Halle,  114.)  To  be  sure,  reasonable  competition 
is  meant,  the  kind  that  usually  prevails.  Competition  would  lower  wages 
by  lowering  net  income  if  carried  to  the  excess  of  weakening  or  ruining 
employers.  Consolidation  that  with  better  machinery  lowered  price  and 
increased  sales,  would  pay  higher  wages  and  employ  more  men.  The  claim 
is  untenable  that  competition  is  selfish  and  heartless,  like  the  destructive 
struggle  for  life  among  wild  animals.  Reasonable  competition  (not  that 
by  trusts  meant  to  destroy)  is  a  struggle  to  supply  the  people  better,  not  to 
hann  any  one.  The  producer  crowded  out  is  benefited  by  the  competition 
of  all  who  supply  him,  which,  besides  giving  him  the  most  goods  to  enjoy, 
leaves  to  the  public  the  largest  balances  to  spend,  and  makes  thus  the 
largest  demand  for  his  capital  or  skill  in  other  business. 


2 1 8  The  Plai7i  Facts  as  to  the  Trusts. 

date,  and  others  cannot  enter  the  business  with  equal 
chances.  But  in  the  competitive  field — aside  from  mines, 
railroads,  gas  works,  patents,  and  secret  processes — there 
will  probably  be  few  cases  in  which  cheapest  production 
requires  a  capital  so  large  as  to  confine  the  business  to 
a  few  great  concerns,  tending  to  be  drawn  by  self-inter- 
est into  a  monopoly ;  and  here  a  monopoly  would 
be  comparatively  harmless  if  clubbing  of  competitors 
were  prohibited  by  law,  along  with  favoring  rates  from 
naturally  monopolistic  railroads.  Its  power  to  exact 
monopoly  profits  could  last  no  longer  than  the  time 
required  to  build  competing  plants.  Only  in  these  few 
cases,  if  there  be  such,  is  there  a  natural  development 
into  the  gigantic  concern.  When  Professor  Ely  says 
that  mass  of  capital  alone  cannot  give  monopoly  power, 
he  means  of  course  without  clubbing.  But  with  an 
industry  confined  to  a  few  strong  concerns,  a  pool  or 
agreement  on  prices,  as  with  railroads,  is  better  for  the 
public  than  destructive  competition.  The  latter  will 
hardly  arise,  however  large  the  plants,  if  they  are  not  so 
few  as  to  arouse  monopoly  hunger,  or  if  law  prevents  its 
gratification.^ 

'  Fewness  of  Concerns  and  Large  Capital  have  not  drawn  the  har- 
vester, sewing  machine,  nor  printing  press  makers  into  trusts,  though  in  each 
case  there  are  probably  not  over  a  half  dozen  important  concerns,  and  though 
patents  and  good  will  are  of  great  value.  Probably  there  are  scores  of  in- 
dustries not  consolidated,  each  of  which  consists  of  less  than  a  dozen  im- 
portant concerns. 

No  Monopoly  if  the  Way  is  Open  to  Competitors. — By  Professor 
Clark's  definition  {P.  S.  Quarterly,  Sept.  1901),  a  concern  producing  all 
the  supply  is  not  a  monopoly  if  the  business  is  open  to  any  competitor  who 
can  offer  as  good  values.  As  Professor  Ely  teaches,  it  seems  doubtful  if  a 
market  could  long  be  monopolized,  among  a  progressive  people,  by  any  con- 
cern not  resorting  to  clubbing,  and  depending  wholly  on  largest  capital  and 
highest  skill — deriving  no  aid  from  patents,  mines,  or  railroad  discrimina- 
tion.    And  a  patent,  if  not  sold,  is  soon  competed  with  by  another  pat- 


TJie  Trusts  a7id  the  Future  of  Society.  2 1 9 

ent.  The  discussion  of  the  preceding  pages  seems  to  show  that  the  econ- 
omies of  combination  cannot  largely  overbalance  the  extra  expense  it  causes. 
But  one  of  these  two  things  is  certain  :  either  the  gains  from  economies  are 
small,  or  the  trusts  are  grasping ;  for  instead  of  being  content  with  such 
gains,  which  consumers  would  gladly  allow,  the  trusts  have  unscrupulously 
fought  competition,  which  could  not  seriously  harm  them  if  economies  had 
really  cheapened  their  product.  (This  fighting  still  continues  intense.  It 
is  just  now  announced — April,  1902 — that  a  trust  has  threatened  to  open 
cigar  stands  in  Chicago,  if  dealers  there  buy  of  its  competitors.  The  Brit- 
ish tobacco  trust's  late  offer  to  divide  ^^50,000  among  dealers  buying  of  it 
alone  was  met  by  the  American  trust's  offer  of  £2.00,000  and  of  all  its  prof- 
its besides.  The  dealers  declined  both  offers,  in  view  of  the  question, 
What  then  ?     Under  free  trade,  the  American  trust  is  their  safeguard. ) 

The  Consolidating  Force  in  the  Steel  Industry  was  fear  of  an  out- 
break of  ruinous  competition  among  the  few  strong  concerns.  Exclusive 
access  to  the  best  mines  makes  these  concerns  almost  as  monopolistic  as 
railroads.  In  their  field,  with  their  present  size  and  power,  competition 
cannot  be  depended  upon.  Fearing  to  trust  their  earnings  and  property  to 
temporary  pools  and  agreements,  they  united  under  an  effectual  community 
of  interest.  The  Steel  Corporation  will  be  able  to  steady  prices — to  limit 
production  to  a  paying  demand.  Its  close  relations  with  similar  combina- 
tions of  railroads  and  banks  give  to  the  allied  interests  great  power ;  but 
far-seeing  prudence  will  probably  lead  them  to  refrain  from  abusing  that 
power — to  stand  aloof  from  politics,  and  to  be  just  to  the  public.  ( Review 
0/  Reviews,  April,  I901.)  That  they  must  do,  or  private  ownership  of 
nature's  stores  would  soon  be  restricted  by  law. 

The  Good  Despot. — Yet  the  Steel  Corporation  comes  perilously  near  to 
being  a  case  of  the  good  despot.  It  is  repeatedly  commended  by  trade 
journals  for  refusing  to  raise  prices  during  the  scarcity  of  its  products  that 
has  prevailed  ever  since  its  strike  last  summer.  Though  it  is  restrained  by 
the  fear  of  checking  consumption,  and  of  inviting  imports,  condidons  are 
abnormal  when  a  seller  has  to  tell  a  buyer  that  a  lower  price  is  best.  It 
would  have  help  in  fixing  prices  and  meeting  scarcity,  if  its  tariff  duties  were 
removed  ;  and  in  case  of  overproduction,  its  surplus  would  have  the  world 
to  spread  over,  in  established  lines  of  outflow. 

The  Steel  Trust's  Weakness,  pointed  out  by  Professor  E.  S.  Meade, 
in  a  searching  analysis  in  the  Quarterly  Journal  of  Economics,  reviewed 
in  The  Outlook  of  April  5,  1902,  is  a  capitalization  based  on  earnings  at 
the  highest  stage  of  prosperity,  with  fixed  payments  of  7  per  cent  on  |!55o.- 
000,000  of  preferred  stock,  and  of  5  per  cent  on  $300,000,000  of  bonds, 
now  to  be  increased  with  $250,000,000  of  new  bonds,  retiring  $200,000,- 
000  of  preferred  stock.  Placing  annual  net  earnings  at  $125,000,000  (they 
proved  to  be  $1 1 1,067, 195 ),  Professor  Meade  concludes  that  another  shrink- 


220  Tlie  Plain  Facts  as  to  the  Trusts. 

Will  Small  Producers  be  Crowded  Out  ? — The  fear  tliat 
small  producers  in  general  are  to  be  crowded  out  of  in- 
dependent business  will  scarcely  continue  after  monopoly 
has  been  removed  by  law  and  opinion  as  a  motive  for 
consolidation.  It  is  probable  that  the  change  to  fewer 
and  larger  establishments  has  been  balanced  by  the 
starting  of  small  concerns  to  make  new  appliances. 
New  manufacturing  corporations  with  a  few  thousands  of 
capital  are  continually  being  started  in  Michigan,  as  re- 
ported by  the  Secretary  of  State — more  numerously  of 
late  than  before ;  and  her  many  small  cities,  hives  of 
separate  industries,  are  in  most  cases  but  slightly  changed 
by  trust  consolidation.  The  many  thousands  of  suc- 
cessful manufacturers  on  a  limited  scale  are  probably  in- 
creasing with  the  frequent  starting  of  small  concerns  on 
upper  floors,  using  cheap  electric  power,  or  steam  power 
rented  with  the  rooms.  Useful  articles  manufactured  by 
these  are  constantly  being  invented  or  improved. 

Men  of  Original  Capacity  to  devise,  make,  or  sell  things 
are  not  all  ready  to  trade  their  birthright  for  a  safe  posi- 
tion under  a  trust.  If  they  were  all  to  sink  to  this  atti- 
tude regarding  the  initiative  in  enterprise,  there  would 
be  a  change  of  progress  not  for  the  better.     Doubtless 

age  of  demand  and  price  in  iron  and  steel,  such  as  that  of  1890-58,  would 
admit  of  no  payments  but  the  interest  on  bonds,  allowing  preferred  divi- 
dends to  accumulate  against  future  years,  and  endangering  the  great  cor- 
poration's solvency.  Its  exceptional  strength  in  prosperous  times,  from 
gaining  in  high  prices  of  materials,  which  it  produces  for  itself  down  to  ore 
and  coal,  as  well  as  from  high  prices  of  products,  becomes  in  dull  times  its 
exceptional  weakness.  Falling  prices  then  take  its  profits  both  on  products 
and  on  materials,  while  what  the  smaller  producer  loses  from  falling  price 
of  product  is  partly  balanced  by  cheapness  of  materials  he  buys.  Hence, 
with  the  steel  trust  success  depends  on  ultra  conservatism,  to  prevent 
another  case  of  rising  prices,  erection  of  new  mills,  overproduction,  falling 
prices,  and  prolonged  depression. 


TJic  Trusts  and  the  Future  of  Society.  2  2 1 

there  are  many  men  of  independence  who  would  not  be 
held  to  a  trust  by  ownership  of  its  stock  if  they  could 
not  be  influential  in  directing  its  business.  Personal  am- 
bition, mentioned  as  a  strong  motive  in  forming  the  wire 
and  sugar  trusts,  might  also  become  in  some  cases  a  mo- 
tive for  disruption.  Even  among  the  few  managers  of  a 
trust  not  naturally  monopolistic,  high  ability  may  cause 
a  man  to  withdraw  after  a  while  to  go  forward  alone. 
Desire  for  independence  has  kept  some  men  from  yield- 
ing to  the  offer  of  a  great  price,  and  of  a  high  office,  to 
induce  them  to  join  a  trust.  A  single  trust  may  not 
afford  room  for  many  equals,  and  some  men  can  be 
nothing  less.^ 

^  Dissolution  of  Trusts. — But  almost  universally,  perhaps,  a  trust  in 
the  form  of  a  single  corporation,  having  the  best  plants,  will  continue  to 
exist,  whatever  the  competition  arising.  The  whisky  and  cordage  trusts 
have  failed  repeatedly,  but  have  been  reorganized.  Many  others  have  fol- 
lowed their  example.  The  notable  case  of  dissolution  was  that  of  the 
National  Wall  Paper  Company,  whose  plants  in  most  cases  were  bought 
back  by  previous  owners.  President  Burn  said  he  believed  other  trusts 
would  dissolve  if  a  way  were  open  not  involving  too  much  loss.  Leading 
officials  of  the  vv'all  paper  and  cordage  trusts,  and  also  of  others,  testified 
that  they  would  prefer  to  take  chances  as  independents.  Perhaps  in  their 
industries  new  plants  were  too  easily  started.  The  National  Fish  Com- 
pany, at  Boston,  a  single  corporation,  was  dissolved  in  1901,  after  an 
existence  of  sixteen  months,  owing  to  the  desire  of  its  members  to  continue 
as  individual  firms.  The  glass  fruit  jar  combine  of  Indiana,  dissolved  in 
1901,  was  only  a  pool.  The  American  Harvester  Company,  organized  in 
1890,  did  not  begin  business,  owing  to  fear  among  leading  concerns  of  los- 
ing prestige. 

Unrestrained  Competition  Was  Mr.  Carnegie's  Principle — He 
united  all  steps  of  manufacture  into  one  compact  concern  at  Pittsburgh, 
and  turned  out  steel  products  only,  not  stocks  and  bonds.  When  he  was 
about  to  build  a  great  tube  mill,  the  steel  trusts,  not  being  able  to  compete 
with  him,  and  knowing  his  aversion  to  pools,  had  to  buy  him  out,  substan- 
tially on  his  own  terms,  to  preserve  their  profits  on  watered  stock.  He 
made  his  fortune,  not  by  raising  prices,  but  by  forcing  all  competitors  to 
sell  to  the  people  cheaply.     To  get  rid  of  his  aggressive  competition  was 


222  The  Plain  Facts  as  to  the  Tnists. 

The  Trust  and  Ambitious  Young  Men. — The  men  of 
exceptional  ability  for  whom  it  is  said  the  trusts  will 
make  greater  demand  than  heretofore,  must  be  those 
scientists  and  experts  who  develop  processes  but  are 
unfitted  for  independent  management ;  also  bright  men 
in  various  positions  who  are  fitted  to  rise  so  far  but  no 
farther.  These  are  very  useful  people,  but  they  are  not 
those  who  have  chiefly  more  modern  progress.  While 
it  is  true  that  superintendents  and  foremen  are  given 
large  power  of  discretion,  and  develop  much  individu- 
ality, yet  their  case,  reporting  as  they  do  to  superiors,  is 
very  different  from  that  of  producers  wholly  self-directed. 
Perhaps  the  reasons  why  so  many  minor  officials  of  rail- 
roads (not  to  be  independently  owned)  rise  high  and  rap- 
idly are  that  the  industry  has  been  growing  very  fast,  and 
that,  unlike  a  trust,  it  consists  of  hundreds  of  separately 
managed  companies,  affording  chances  to  rise  by  going 
from  one  to  another.^ 

Will  Consolidation  Make  Workers  Capitalists?  —  Dr. 
Albert  Shaw,  whose  masterly  editorials  in  the  Review  of 
Revieius"^  are  usually  written  from  a  survey  of  all  sides  of  a 

therefore  the  main  reason  for  organizing  the  Steel  Corporation.  {  The  Out- 
look, reviewing  Prof.  Meade's  article.)  This  is  a  later  and  more  specific 
explanation  of  the  steel  trust  than  that  on  page  l88,  and  that  on  page  219. 

'  Mr.  Schwab  says  young  men  have  a  better  chance  to  rise  under  a  trust 
because  salaries  are  higher,  merit  surer  of  reward,  and  favoritism  less  com- 
mon. This  seems  true  under  a  new  trust  well  managed.  But  from  lack 
of  acquaintance  with  superiors,  the  merit  of  subordinates  might  not  be  found 
out,  and  after  a  time,  especially  with  a  rich  monopoly  not  dependent  upon 
best  service,  favoritism  would  tend  to  prevail. 

The  method  by  which  Mr.  Carnegie  shared  profits,  according  to  results, 
with  thirty-three  heads  of  departments  (Spahr,  I46)  is  probably  the  most 
effective  for  drawing  out  men's  best  efforts.  But  unless  allowed  substantial 
shares  as  actual  partners,  men  thus  developing  high  ability  would  tend  to 
start  independent  plants. 

2  April  issue,  190I. 


The  Trusts  and  the  Future  of  Society.  223 

question,  seems  to  think  that  the  apparent  disappearance 
of  competition  must  result  in  something  Hke  a  great  coop- 
erative organization  of  workers,  through  their  investment 
of  savings  in  shares  ;  that  the  consoHdation  of  industry  will 
infallibly  vest  capital  in  workers,  greatly  lessening  inequal- 
ities of  lot.  Will  this  optimistic  idea  bear  questioning  ? 
Safer  stocks  were  on  the  market  before — railroad,  mining, 
and  local  bank  shares.  Few  wage  workers  cared  for  them, 
having  better  use  for  savings  in  building  homes,  adding 
furniture,  and  improving  consumption.  That  consolida- 
tion has  caused  any  permanent  increase  of  wages  worth 
noting  is  doubtful,  but  where  successful  it  has  usually 
reduced  the  people's  savings  by  raising  prices.  With  the 
mass  of  workers  wages  must  continue  to  be  practically 
the  one  source  of  income.  They  can  not  save  enough 
to  get  much  in  dividends  or  interest.  Dividends  on 
$  1 ,000  in  stock  would  be  only  about  ^60.  The  man  who 
can  save  ^1,000,  after  performing  his  first  duty  of  build- 
ing and  furnishing  a  good  home  and  educating  his  family, 
has  always  been  able  to  get  ahead.  Consolidation  less- 
ens the  power  of  unions  to  raise  wages.  Strikers  can- 
not remain  out  long  enough  to  coerce  a  trust,  having  no 
equal  competitor  to  take  its  patrons,  while  a  new  com- 
petitor might  need  from  one  to  two  years  to  build  a  plant. 
Does  it  Not  Have  the  Opposite  Effect? — Consolidation, 
unless  it  perceptibly  increases  real  wages  by  cheapening 
supplies  and  steadying  production  (yet  to  be  proved), 
makes  the  case  worse,  by  eliminating  the  powerful  incen- 
tive of  engaging  in  business  for  one's  self  The  fact  is 
that  a  habit  of  leaving  savings  permanently  at  interest 
weakens  a  nation.  To  develop  greatest  usefulness  a  man 
should  be  continually  planning,  where  practicable,  to  use 
savings  in  some  form  of  independent  effort.     Leaving 


224  '^^^'^  Plain  Facts  as  to  the  Trusts. 

them  at  interest,  to  be  depended  on,  is  for  widows  and 
old  people.  The  distribution  of  French  bonds  among 
4,404,763  names  in  1877  has  connection  no  doubt  with 
the  serious  decline  of  individual  enterprise  in  France, 
The  government  salary  and  pension,  for  which  they  aim, 
though  desirable  with  many,  dwarf  a  person  who  was 
born  capable  of  striking  out  for  himself  to  do  an  original 
share  of  the  world's  work.  It  is  not  surprising  that 
French  trade  is  not  growing,  that  the  national  govern- 
ment costs  nearly  ;^20  a  year  for  each  inhabitant,  and 
that  in  twenty -five  years  its  debt  has  increased  ;$  1,800,- 
000,000,  being  now  ;^6,ooo,ooo,ooo. 

Will  it  Add  to  the  Class  of  Idle  Investors  ? — Monopo- 
listic consolidation  would  also,  it  seems,  add  to  the  class 
of  idle  investors,  despite  falling  interest.  It  increases  the 
securities  to  invest  in,  presumably  raises  dividends,  and 
diminishes  business  openings  suitable  for  persons  of  some 
wealth  and  ability.  However,  there  is  little  reason  for 
alarm.  Consolidation  that  does  not  cheapen  supplies 
will  not  last.  Until  it  does  that,  calling  it  a  revolution 
seems  to  be  merely  a  burst  of  enthusiasm. 

If  the  Trust  Cheapens  Production,  to  "Whom  Does  the 
Saving  Fall  ?  — Whatever  is  saved  by  a  trust,  through  the 
perfection  of  equipment  and  of  management  afforded  by 
its  ample  capital  and  ability,  is  new  wealth  in  the  coun- 
try —  to  its  product  so  much  has  been  added  without 
equal  outlay.  Society  would  be  benefited  if  all  this  gain 
were  added  to  profits — not  to  be  spent  by  trust  magnates 
in  harmful  luxury,  but  invested  as  capital  to  produce  addi- 
tional useful  things.  The  social  benefit  would  be  greater 
if  a  part  of  the  gain  fell  to  an  increase  of  wages,  which 
in  brisk  demand  organized  workmen  can  usually  secure 
from  a  trust.     They  then  live  better,  and  are  elevated  in 


TJie  Trusts  ajid  the  Future  of  Society.  225 

character  and  ability  to  work.  But  the  social  benefit  is 
greatest  when  by  lowering  price  the  gains  of  improve- 
ment fall  chiefly  to  the  public.  All  then  have  a  chance 
of  elevation  in  a  more  abundant  living.^  Wages  can 
scarcely  be  raised  much  above  the  average  for  the  same 
grade  of  work  in  other  trades. 

Gain  Has  Been  Distributed  by  Competition.  —  It  has 
been  in  this  beneficent  lowering  of  price  that  the  gains  of 
improvement,  except  for  a  time  at  first,  have  hitherto 
fallen  chiefly  to  consumers,  under  free  competition.  But 
when  extra  profit  comes  from  higher  price,  without  low- 
ering cost  of  production,  no  wealth  is  saved  ;  it  is  only 
taken  from  the  pockets  of  consumers  and  put  into  the 
pockets  of  trust  magnates.  No  possible  wisdom  and 
philanthropy,  in  using  such  profits  to  educate  and  uplift 
the  people,  could  make  this  a  wholesome  process,  though 
such  use  of  great  wealth  gained  without  resorting  to 
improper  monopoly  is  highly  commendable.  There  is  a 
similar  taxing  of  consumers  when  a  monopoly  prevents 
a  price  from  falling  so  fast  as  it  would  under  competition. 
A  monopoly  with  power  to  force  down  price  of  materials 
bought  would  scarcely  use  that  gain  to  lower  its  price  to 
consumers  ;  and  a  small  percentage  of  the  people  can 
buy  enough  trust  stock,  even  if  it  were  always  safe,  to 
balance  their  loss  as  consumers  with  investors'  dividends. 
Hence,  monopoly  gains  are  likely  to  result  in  net  money 
injury  to  society,  in  addition  to  lowering  morals,  and 
weakening  individual  initiative. 

The  Passing  of  Small  Producers  is  Not  a  New  Change.  — 
But  nature's  forces  of  competition,  when  not  suppressed 
unfairly,  which  suppression  is  not  to  be  tolerated  much 
longer,  will  save  the  public  from  the  monopolistic  evils 

'  Jenks,  N.  A.  Review,  June,  1901. 
15 


226  Tlic  PI  am  Facts  as  to  the  Tnists. 

discussed.  And  if  progress  to  production  of  best  qual- 
ity and  lowest  cost  closed  as  many  small  shops  as  some 
frightened  people  have  feared  (not  at  all  probable),  why 
should  the  future  be  regarded  with  gloomy  forebodings  ? 
There  would  be  nothing  new  in  the  change.  It  began 
with  civilization,  when  independent  production  by  each 
family  of  all  it  used  gave  way  to  division  of  labor  into 
separate  occupations.  The  elimination  of  small  shops 
during  the  last  thirty  years  was  only  the  last  stage  of 
the  change  begun  a  century  earlier,  from  hand  tools  to 
machinery.  The  cross-roads  wagon-maker  could  not 
have  expected  to  continue  in  business.  His  occupation 
belonged  to  the  handicraft  period,  whose  passing  away  is 
evidenced  by  the  perfection  and  cheapness  of  modern 
commodities.^  Recent  changes  of  scale  and  method  are 
slight  compared  with  the  starting  of  the  factory  system  a 
century  and  a  quarter  ago.  It  was  then  a  sudden  revo- 
lution, wrecking  many  an  ancient  shop.  Now  it  is  a 
gradual  evolution,  allowing  producers  time  to  adjust 
themselves  to  new  conditions.  The  most  beneficent 
change  possible  causes  trouble  to  some.  Closing  a 
bloody  war  stops  the  business  of  army  contractors,  and 
leaves  many  soldiers  out  of  employment. 

Independent  Production  an  Evil  When  Not  Briskly  De- 
sired.— The  majority  of  independent  manufacturers  do 
little  more  than  fit  together  materials  previously  prepared 
for  use.     Their  service  to  society  is  not  greatly  different 

'  Sweat  Shops. — The  distressing  poverty  of  sweated  (overworked  and 
underpaid)  clothing  makers  in  large  cities,  and  of  various  other  hand  work- 
ers running  little  shops  in  England,  is  due  to  the  fact  that  they  are  clinging 
to  the  industries  of  a  past  age.  Surest  relief  to  them  would  come  from 
large  factories  doing  their  work  so  cheaply  and  so  well  as  to  drive  them  out 
of  business  entirely.  They  would  then  work  in  clean  factories,  reasonable 
hours,  at  a  living  wage. 


The  Trusts  and  the  Future  of  Society.  22/ 

from  that  of  a  wage  earner  doing  a  part  of  a  factory- 
process.  If  that  part  is  necessary,  and  he  does  it  well, 
and  the  factory's  product  is  wanted,  his  living  is  just  as 
secure  as  if  he  alone  made  the  product  from  start  to 
finish.  Independent  production  is  harmful  to  the  char- 
acter of  the  producer,  as  well  as  wasteful  to  society, 
when  the  product  is  not  briskly  desired  at  its  price  and 
quality.  The  factory  worker  mentioned  is  more  useful 
and  self-respecting  than  an  independent  proprietor  fawn- 
ing on  people  to  get  their  trade,  and  complaining  that  the 
big  fish  are  about  to  swallow  up  the  little  fish.  His 
attitude  then  tends  toward  that  of  a  solicitor  of  alms. 
When  his  little  shop  cannot  meet  fair  competition,  the 
good  of  all  concerned  requires  that  it  be  closed.  Some- 
where else  his  labor  and  capital  are  needed.^ 

*  Retiring  Early  to  Idleness,  to  make  a  business  opening,  and  give 
others  a  chance,  a  practice  to  some  extent  with  the  wealthy  in  Europe,  is 
thought  by  many  to  be  praiseworthy.  A  St.  Louis  manufacturer  retiring 
at  thirty-four  on  ^250,000,  to  take  pleasure  boating  on  Western  rivers,  is 
called  a  young  altruist.  This  word  may  be  proper  here  from  his  efforts  to 
benefit  his  employees,  but  his  retiring  so  young  can  only  deprive  society  of 
the  work  of  a  useful  man.  Society  wants  goods  and  services,  not  more 
openings  for  work.  The  discouragement  has  always  been  that  too  much 
work  is  required  to  attain  earthly  good.  Only  his  competitors,  making  or 
about  to  make  the  same  line  of  goods,  are  benefited  by  his  retiring.  The 
survivors  would  be  benefited  if  others  of  their  number  were  put  out  of  the 
business  by  lightning  destroying  their  factories.  All  people  in  other  busi- 
ness, as  consumers,  want  the  goods  made  by  the  man  retiring  to  be  as 
plentiful  and  cheap  as  possible,  so  long  as  profit  in  them  is  not  too  low  for 
steady  production. 

Many  Persons  Speak  Contemptuously  of  the  Benefits  of  Low 
Prices,  as  if  they  could  enjoy  a  larger  living  with  all  prices  higher.  They 
might  as  well  state  prices  in  cents  instead  of  dollars,  in  order  to  use  larger 
numbers.  Human  welfare  must  be  advanced  chiefly  by  increase  and  cheap- 
ening of  goods.  A  new  machine  increasing  product  benefits  a  thousand 
consumers  in  lower  price,  necessary  to  sell  the  increase,  where  it  benefits 
one  producer  in  larger  quantity  to  sell,  and  fifty  workmen  in  higher  money 


2  28  The  Plain  Facts  as  to  the  Trusts. 

Effect  of  Consolidation  on  the  Small  Town. — The  same 
may  be  said  of  the  tendency  of  trusts  to  move  plants  from 
the  West  to  the  East,  and  from  the  town  to  the  large 
city.  If  they  gain  thereby  advantages  that  lower  cost 
of  production,  the  economic  force  is  too  strong  to  be 
overcome.  The  West  and  the  town  need  no  help  that 
any  person  must  suffer  loss  to  render.  The  means  they 
afford  for  getting  a  living  will  be  the  best  in  reach  for 
the  population  that  nature  fits  them  to  have.  Besides, 
the  trust  movement  evidently  has  too  little  economic 
basis  to  cause  a  serious  fall  of  property  values  by  taking 
factories  away  from  small  towns.  When  law  has  dis- 
armed the  trust  of  its  club,  and  time  has  been  given  for 
small  factories  to  grow  up  again,  it  is  improbable  that 
towns  will  fare  very  differently  from  heretofore.^ 

wages.     As  goods  are  increased  and  cheapened  in  price,  each  person's 
labor  or  product  brings  to  him  a  larger  living. 

An  Altruist  Might  Help  Society  Most  by  leaving  an  easy  work  for 
the  less  capable,  and  devoting  himself  to  the  production  of  some  needed 
article  now  poorly  supplied.  A  Chicago  man,  lately  deceased,  who  retired 
on  $250,000,  probably  did  well  for  society  ;  because  his  associates  contin- 
ued the  factory  as  before,  while  he  gave  his  time  and  money  to  helping 
deserving  young  men  to  reach  higher  usefulness.  The  feeling  of  having 
enough  forone'sself  is  good;  but  retiring  then  to  take  ease  may  be  as  selfish, 
and  is  more  harmful  to  society,  than  continuing  eagerly  down  to  old  age  to 
get  all  the  money  in  reach.  To  make  money,  one  must  usually  render 
good  values.  By  retiring  partially,  to  give  younger  partners  practice, 
an  elderly  man  might  cause  the  firm's  capacity  and  experience  to  be  used 
to  best  advantage.  One  very  wealthy  man  thinks  millionaires  are  just  dis- 
covering the  joy  of  giving.  His  hope  is  that  it  will  become  a  custom  with 
them  to  spend  thought  and  money  in  later  life  to  benefit  humanity. 

'  The  Larger  the  Factory  the  Better  the  Conditions  of  labor  is 
usually  the  ride — best  light  and  ventilation,  best  enforcement  of  factory 
laws,  highest  wages  and  surest  pay,  latest  machinery  and  best  chance  to 
develop  skill.  This  is  often  balanced,  however,  by  closer  acquaintance 
with  the  proprietor  of  a  small  factory,  and  by  advantages  of  village  over 
city  life. 


The  Trusts  and  the  Future  of  Society.  229 

Men's  Living  Was  Poorest  When  Shops  Were  Smallest. 
The  fear  that  the  occupation  of  small  producers  and 
traders  will  be  taken  away  by  large  corporations,  is 
sometimes  coupled  with  the  fear  that  employment  for 
wage  workers  will  be  taken  away  by  machinery.  These, 
with  many  other  dangers  that  might  be  thought  of,  were 
well  provided  against  by  nature.  When  there  was  most 
work  to  be  done  by  hand,  with  fewest  tools  and  ma- 
chines, the  living  of  laborers  was  poorest.  Useful  things 
were  produced  in  quantities  so  small  and  uncertain  that 
where  the  barbarous  family  had  them  all  they  were  often  in 
danger  of  starvation.  A  few  centuries  ago,  in  a  civilized 
land,  a  linen  sheet  was  worth  thirty-two  days  of  common 
labor.  As  by  invention  of  machinery  wage  workers 
have  been  enabled  to  produce  more,  their  share  of  prod- 
uct in  wages  has  grown  larger.  New  wants  in  society 
have  appeared  faster  than  workers  to  supply  them  have 
been  released  by  machinery  from  other  employment. 
Hence,  labor  power  is  more  regularly  utilized  as  civiliza- 
tion advances,  and  the  living  of  all  classes  steadily  rises 
as  product  is  increased  to  divide  with  wage  workers  in 
larger  pay  in  money,  and  as  abundance  of  goods  lowers 
their  price  to  consumers. 

American  Wages  Have  Doubled  in  money  during  the 
last  sixty  years,  and  have  more  than  doubled  in  goods 
enjoyed.  Work  in  factories  gathers  people  together,  and 
their  ignorance,  then  being  noticed,  is  remedied  by  pub- 
lic schools,  and  is  also  lessened  by  development  of  skill 
to  use  machinery,^  and  by  associating  with  more  intelli- 

'  Wright,  352.  No  matter  how  monotonous  factory  work  may  be,  the 
social  surroundings  make  operatives  more  intelligent  than  farm  hands, 
whose  work  is  of  greater  variety.  (Marshall.)  But  a  little  schooling, 
travel,  and  access  to  towns,  makes  farm  hands,  perhaps,  the  more  inde- 
pendent class  of  the  two. 


230  TJie  Plain  Facts  as  to  the  Trusts. 

gent  people.      In  various  ways  the  civilization  of  to-day 
was  brought  about  by  machinery. 

The  More  Labor-Savmg  Machinery  We  Have  the  Better. 
Few  people  would  object  if  improvement  in  produc- 
tion continued  until  it  became  no  longer  necessary  to 
sweat  on  the  brow  in  order  to  eat  bread.  That  consum- 
mation is  still  a  long  way  off — will  never  come  in  the 
present  order  of  nature,  because  human  character  would 
quickly  be  ruined  by  release  from  the  necessity  for  labor 
and  mental  effort.  The  time  and  strength  of  the  mass 
of  the  people,  despite  the  shortening  work  day,  are  still 
absorbed  in  the  struggle  for  existence.  They  might 
make  their  lot  easier  by  wanting  less,  but  growing  wants 
are  favorable  to  development  so  long  as  the  means  of 
supplying  them  grow  as  fast. 

Work  for  All. — There  is  plenty  of  work  for  every  wage 
earner  and  small  producer  displaced  by  progress.  As 
free  men  they  are  to  find  it  themselves,  to  suit  their  own 
tastes  nearest,  not  to  have  it  furnished  for  them  as  if  they 
were  dependents,  to  be  ordered  about  by  a  superior 
power.  Not  many  commodities  are  so  good  in  quality 
as  they  might  be,  nor  so  plentiful  that  more  would  not 
be  a  benefit.  Leaders  in  progress,  studying  out  improve- 
ments, are  continually  needing  men  for  new  lines  of 
work.  The  vast  field  of  electric  manufacture,  and  of 
suburban  electric  railways,  has  mainly  been  opened 
within  the  last  fifteen  years.  About  the  same  is  true  of 
the  bicycle  industry.  It  is  seldom  that  a  prosperous 
concern  permanently  lessens  its  force  of  employees, 
however  frequent  its  purchases  of  labor-saving  machin- 
ery. More  commonly  it  enlarges  its  output  and  hires 
more  men.  Machinery  will  always  require  constant  care, 
and  the  complicated  modern  system  of  buying  and  selling 


Tlic  Trusts  and  the  Future  of  Society.  231 

and  keeping  accounts,  with  all  the  labor-saving  methods 
that  have  been  devised,  employs  an  ever  increasing  army 
of  busy  people/  In  the  offices  of  the  Monadnock  build- 
ing in  Chicago  there  are  said  to  be  regularly  engaged 
more  than  5,000  persons,  and  in  a  New  York  department 
store  3,389  employees  gather  before  a  customer  enters. 
Business  depression  will  be  less  frequent  and  less  severe 
when  people  realize  how  certainly  unwisdom  in  earning 
and  spending  must  sooner  or  later  be  suffered  for. 

Decided  Changes  of  Business  Opportunity  have  come 
about,  and  perhaps  will  always  continue  to  come,  unless 
stagnation  sets  in.  Mr.  Carnegie  was  right  when  he  said 
he  might  do  better  as  a  boy  arriving  in  America  to-day 
than  in  1848.  A  person  introducing  new  things  has 
now  more  people  and  more  wealth  from  which  to  draw 
patronage.  "As  trade  widens,  opportunities  increase."  ^ 
But  men  to  take  them  may  increase  faster,  and  bring  our 
conditions  nearer  to  those  of  Europe.  The  exceptional 
promise  of  to-day  is  chiefly  for  men  of  original  capa- 
bility. The  case  is  different  with  mediocre  men.  One 
of  the  latter  starting  a  local  store  has  now  less  chance 
of  success  than  his  father  had,  when  the  country  was 
newer,  openings  more  numerous,  competition  less  sharp, 
and  a  less  exacting  grade  of  service  required. 

Society  is  Now  Better  Served,  however,  because  abler 

*The  complexity  brought  into  modern  life  by  growing  use  of  machinery 
enormously  increases  demand  for  workmen  of  skill.  Sir  Robert  Giffen  has 
shown  that  not  only  a  greatly  increased  number  of  men,  but  a  much  larger 
proportion  of  their  total,  are  now  engaged  than  formerly  in  skilled  work 
well  paid  for.  This  effect  of  machinery  to  increase  employment  and  wages 
can  be  seen  in  comparing  such  a  city  as  Hartford  with  a  non-manufacturing 
city  of  about  its  size,  say  Charleston,  S.  C.  In  a  city  like  the  latter  there 
is  work  at  good  wages  for  very  few.  Most  of  the  work  is  common  labor, 
or  but  little  above  it. 

2E.  W.  Bok. 


232  TJie  Plain  Facts  as  to  the  Trusts. 

men  conduct  its  business.  Perhaps  the  competent  form 
the  same  percentage  of  the  people  now  as  in  the  past. 
Business  is  more  difficult,  but  more  people  strive  to  learn 
it.  Despite  increase  of  education,  increasing  complexity 
of  business  makes  captains  of  industry  as  rare  as  ever ; 
and  though  rate  per  cent  of  profit  falls,  increasing  sales 
liave  been  giving  each  a  larger  aggregate  net  return. 
All  are  benefited  except  a  few  who  in  their  respective 
occupations  are  unable  to  keep  up,  and  it  is  progress, 
so  widely  desired,  that  causes  their  discomfiture.  The 
many  business  openings  twenty  years  ago,  for  men  of 
all  grades,  were  exceptional,  due  to  the  rapid  settling 
of  new  districts,  and  to  increase  of  inventions.  Such 
conditions  could  not  have  continued  after  new  regions 
had  been  occupied.  The  period  from  1865  to  1890, 
vv^hen  Mr.  Carnegie  built  his  fortune,  may  not  soon  be 
equaled  again  as  a  time  of  easy  success  in  business. 

Increase  of  Wealth  and  Decay  of  Men. — Any  one  will 
agree  with  Goldsmith  that 

"  111  fares  the  land,  to  hastening  ills  a  prey, 
Where  wealth  accumulates,  and  men  decay." 

But  wealth  must  increase  if  men  are  to  have  time  and 
means  for  education,  and  for  high  development  of  civili- 
zation. When  kept  by  necessity  under  constant  struggle, 
they  cannot  rise  far  above  brute  existence.  Wealth  is  a 
blessing  to  all  when  it  increases  under  good  laws  and 
customs,  elevating  the  whole  people,  not  a  single  class. 
Then  it  does  not  bring  decay  to  men,  but  the  highest 
development  of  their  possibilities.  Present  tendencies  are 
toward  a  wiser  use  of  wealth  than  was  ever  known  before. 
It  is  wasteful  and  wrong  for  a  person  to  be  poor  when 
he  is  fitted  to  become  rich  and  largely  useful  ;  but  it  is 


Tlie  Trusts  and  the  Futinr  of  Society.  233 

no  discredit  to  be  poor  when  one's  nature  or  misfortune 
prevents  him  from  doing  better.  It  must  be  remembered 
that  the  poor  in  spirit  are  blessed,  not  always  the  poor  in 
pocket.  Christ  considered,  not  one's  condition,  but  his 
effort  and  purpose.  He  condemned  misuse  of  wealth, 
in  hoarding  or  luxury,  while  the  needy  were  uncared 
for ;  but  unfaithfulness  to  duty  among  the  poor  he  con- 
demned no  less. 

Elimination  of  the  Individual. — There  is  no  danger  of 
the  elimination  of  the  individual — of  degenerating  into 
human  machines — so  long  as  the  unsoundness  of  social- 
istic ideas  is  perceived,  and  as  it  pays  as  well  as  at  pres- 
ent to  be  an  individual.  No  one  but  a  thinking  and 
striving  individual  will  long  amount  to  much  as  a  worker, 
whether  for  profits  or  for  wages.  Even  in  the  simplest 
hoeing  and  grubbing,  one  must  push  himself  to  do  a 
creditable  day's  work.  Herein  lies  the  fatal  objection  to 
anything  like  complete  socialism.  Under  it  the  man 
doing  the  least  would  have  a  sure  support  for  himself 
and  family,  while  the  product  of  the  man  doing  most 
would  have  to  go  in  large  part  to  the  government  to  give 
the  man  doing  least  a  better  support  than  he  has  now  ; 
for  a  pauper  support  is  already  guaranteed.  Unless  the 
lazy  were  forced  to  work,  somewhat  as  slaves,  and 
unless  men  were  assigned  by  the  authorities  to  occupa- 
tions without  much  pretense  of  liberty  to  choose,  and 
good  work  gotten  out  of  them  in  some  way,  large 
increase  of  population,  and  diminishing  product,  would 
soon  be  noticeable,  and  starvation  and  barbarism  would 
be  likely  to  come  in  time.  Socialism  grows  on  wrongs 
in  society,  thriving  especially  amid  the  class  distinctions 
that  still  survive  in  Continental  Europe.  In  America, 
putting    recently    developed    natural    monopoly    under 


234  The  Plain  Facts  as  to  the  Trusts. 

proper  governmental  control,  together  with  growth  of 
sound  laws  to  protect  labor,  and  to  raise  the  weak  to  self- 
support,  will  probably  make  industry  sufficiently  social- 
istic to  remove  unrest  and  agitation.^ 

Natural  Forces  Not  for  Evil.  —  We  may  rest  assured 
that  no  healthful  natural  force,  such  as  that  of  lowering 
cost  to  raise  profit,  and  that  of  uniting  the  savings  of 
many  under  corporate  cooperation  for  best  production, 
will  reduce  self-directed  business  men  to  wage-receiv- 
ing dependence,  any  further  than  the  best  interests  of 
themselves  and  of  society  require.  After  large  factories 
arose,  general  intelligence,  and  capacity  for  taking  the 

'  Marx's  Socialistic  Doctrine  of  Competition  is  that  its  wastes,  and 
its  deepening  of  the  misery  of  the  masses  (both  effects  deemed  to  be  in- 
evitable under  natural  law),  will  eventually  force  society  to  take  all  busi- 
ness from  the  control  of  capitalists,  and  to  put  it  under  one  great  monopoly 
conducted  by  the  state.  Professor  Ely  points  out  that  those  are  virtually 
surrendering  to  socialism  who  argue  as  if  the  monopoly  trust  is  based  on 
the  savings  of  consolidation.  Mr.  Schwab  is  quoted  as  saying  that  the 
steel  trust  is  "now  more  than  ever  ready  to  demonstrate  that  the  greater 
the  scope  of  the  combination,  the  greater  the  possibilities  for  economy." 
[Public  Opinion,  Feb.  27,  1902.)  If  the  latter  were  true,  the  steel  trust 
might  soon  be  a  part  of  the  government.  Yet  the  ablest  thinkers  have  no 
fear  of  this. 

Economists  have  always  admitted  that  competition  causes  wastes 
(most  of  the  good  things  cost  something),  but  have  held  that  these  are 
outweighed  by  its  effect  to  improve  production  and  develop  character ; 
and  that  competition  is  not  self-annihilating,  but  a  permanent  force.  Ob- 
serving the  benefits  of  competition,  the  increase  or  continuance  of  small 
individual  enterprises,  and  the  general  elevation  of  the  masses — obvious  to 
every  one — Herr  Bernstein,  a  leading  socialist  of  Germany,  has  given  up 
the  expectation  that  socialism  will  come  by  growth  of  monopoly  among  the 
rich,  with  increasing  misery  among  the  poor,  and  is  teaching  the  good 
policy  followed  by  all  hopeful  reformers,  namely,  that  of  doing  through 
sound  laws  and  customs  all  that  can  be  done  to  benefit  humanity.  (Ely, 
167,  179,  190.)  The  socialism  that  brings  permanently  good  results  in 
this  way  is  to  be  welcomed.  An  account  of  Bernstein's  movement,  to 
change  socialists  from  dreamers  into  practical  workers,  and  purposeful 
voters,  is  published  in  Public  Opinion,  Oct.  lO,  1901. 


Tlic  Trusts  and  the  Future  of  Society.  235 

initiative,  increased  as  never  before.  The  same  will 
doubtless  be  true  hereafter,  if  society  values  things 
rightly,  and  does  not  permit  an  excrescence  of  monopoly 
to  go  unchecked  as  a  natural  evolution.  Without  mon- 
opolistic clubbing,  the  power  of  the  trust  to  lower  cost 
of  goods  is  probably  too  slender  to  affect  individual 
progress.  God  evidently  adjusted  the  forces  of  nature 
to  develop  to  the  utmost  the  man  or  the  society  that  fol- 
lows them  wisely.  The  need  of  the  present,  to  make 
the  most  of  men,  is  an  increase  of  the  practice  by  which 
each  person  does  his  own  thinking  and  voting,  and 
selects  his  own  work,  with  self-reliant  watchfulness  to 
seize  opportunities  of  advancement.  By  honestly  doing 
his  best  for  himself,  he  does  his  best  for  his  fellow  men.^ 

'  In  the  Latest  Articles  on  Trusts,  about  a  dozen  published  in  The 
Independent,  May  I,  1902  (after  the  preceding  pages  had  been  electro- 
typed),  Prof.  Commons  says  that  more  dangerous  than  control  by  trust 
magnates  of  railroads  (to  which  they  have  now  added  control  of  shipping 
to  Europe),  is  the  control  by  their  New  York  banks  of  capital  in  money 
and  credit ;  that  under  our  inelastic  currency  system,  with  no  great  central 
bank  as  in  Europe  to  issue  emergency  paper,  and  with  currency  gravitating 
into  the  treasury  surplus  (deposits  of  which  the  magnates  can  influence), 
they  can  crush  and  buy  cheaply  a  rival  concern,  by  withholding  credit, 
raising  interest,  or  calling  loans.  He  says  that,  besides  the  tariff,  taxes  too 
low  on  unused  land  favor  monopoly  of  timber  and  minerals  ;  that  because 
it  has  no  control  of  its  materials  (p.  218),  the  National  Biscuit  Company 
has  ceased  trj-ing  to  buy  out  or  drive  out  rivals ;  and  that  leading  more 
voters  to  buy  trust  stocks,  by  making  them  safer  with  publicity,  will  weaken 
power  to  control  by  law  (p.  20).  He  gives  specific  figures  of  present  rail- 
road discrimination,  saying  that  the  Standard's  rate  to  New  Orleans  on  oil 
from  its  refineries  at  Whiting,  Ind.,  is  23c.,  against  33c.  from  Cleveland 
for  independent  refiners  ;  who  are  entirely  shut  out  of  New  England  (which 
the  Standard  reaches  by  water)  by  the  New  Haven  road's  refusal  to  give 
through  rates  on  oil.  It  is  by  these  special  privileges,  according  to  the 
article  by  E.  H.  Crosby,  that  American  society  is  fast  being  stratified  into 
castes,  as  in  the  older  nations.  That  we  are  already  well  started  on  a 
period  of  decline  is  occasionally  claimed  with  reasons  of  some  force. 


2^6  The  Plain  Facts  as  to  the  Trusts. 

Carroll  D.  Wright  says  in  his  article  that  while  we  have  now  even  billion- 
aires [J.  D.  Rockefeller  has  been  so  rated]  the  poor  too  are  growing  richer 
[Bernstein  points  out  the  large  increase  of  persons  paying  income  taxes], 
and  the  rich  in  America  own  now  a  smaller  part  of  the  total  than  40  years 
ago.  To  prove  better  use  of  wealth,  he  cites  the  ;^i  17,000,000  given  in 
large  sums  by  philanthropic  Americans  in  1 901.  Undoubtedly  a  sincere 
idea  of  stewardship  is  taking  hold  of  the  rich.  Prof.  Sumner  shows  that 
by  nature  wealth-getting  must  now  be  done  as  it  is.  But  the  people  can 
hold  nature's  workings  into  honest  lines — can  close  some  of  the  tempting 
opportunities  to  resort  to  methods  that  must  soon  result  in  grave  public  in- 
jury. Prof.  Clark  {Independent,  May  29)  says  that  if  the  people  by  law 
(pp.  144-159)  will  only  give  a  chance  to  competition,  whose  persistence  is 
now  the  saving  force  amid  monopoly,  no  feudalism  can  ripen. 

Increase  of  All  Manufacturing  Concerns  in  number  (p.  163),  accord- 
ing to  Census  Bulletin  of  March  I4,  1902,  was  44.3  per  cent  from  1890  to 
1900,  against  40  and  0.7  per  cent  for  the  two  previous  decades.  Increase 
of  cotton  factories  was  146  (to  1,051).  Concerns  making  shoes  decreased 
from  2,082  to  1,600,  and  concerns  making  farm  implements  from  910  to 
715 — doubtless  due,  as  in  the  previous  decade,  to  suspension  of  production 
by  hand.     Yet  decreases  occurred  in  but  18  out  of  the  total  of  52  classes. 

Other  Additional  Facts,  published  since  the  preceding  chapters  were 
electrotyped,  include  the  following.  By  a  report  of  the  Steel  Corporation 
its  gross  business  for  its  first  year  was  ^459,000,000,  wages  paid  $113,000,- 
000,  profits  $111,000,000,  employees  158,000,  showing  a  high  rate  of  profit 
(nearly  25  per  cent),  as  was  expected  under  its  ownership  of  the  best  mines 
and  under  its  high  tariff  prices.  In  1890,  in  this  country's  total  iron  and 
steel  business,  capital  was  $405,000,000,  employees  175,000,  wages  $95,- 
000,000,  and  product  $478,000,000.  The  steel  trust's  average  wages  per 
man  are  therefore  higher,  but  the  1890  figures  included  all  the  poor  mines 
and  lowest  grades  of  work. 

As  to  the  meat  trust,  the  federal  attorneys  have  charged,  as  existing  up 
to  the  present  time,  the  various  practices  mentioned  on  pages  14,  123-4  ;  and 
from  testimony  of  men  in  a  position  to  know,  it  is  generally  believed  that 
the  charges  are  true.     A  temporary  injunction  has  been  granted. 

As  to  municipal  ownership  (p.  108)  U.  S.  Consul  Boyle  writes  from 
Liverpool  that  in  Great  Britain  99  cities  own  street  railroads,  240  own  gas 
works,  and  181  own  electric  plants.  Liverpool  has  spent  over  $3,000,000 
on  dwellings  to  rent  to  the  poor,  private  enterprise  having  failed  to  provide 
them.  By  the  Municipal  Year  Book  23  American  cities  own  gas  works. 
In  the  north  central  states  35  per  cent,  and  in  the  south  central  60  per  cent, 
still  have  privately  owned  water  works.  Of  the  former,  30  per  cent  have 
municipal  electric  plants. 


PART  11. 
THE  PLAIN  FACTS  AS  TO  THE  TARIFF. 


CHAPTER   X. 

FOREIGN    TRADE    AND    PROTECTIVE    TARIFFS. 

The  Reason  for  Exchange. — The  goods  of  one  country 
are  exchanged  for  those  of  another  on  the  principle  of 
all  exchange,  namely,  that  each  of  the  two  parties  thereby 
gets  something  he  wants  more  than  what  he  gives.  Ex- 
change gives  value  to  a  surplus  that  would  otherwise  be 
wasted,  or  not  produced,  and  thus  adds  to  wealth  almost 
as  essentially  as  does  production. 

The  Confusion  Over  Foreign  Trade  Arose  from  Money, 
as  difficult  to  understand  as  it  is  common  in  use.  The 
Mercantile  doctrine  of  the  early  moderns,  which  prevailed 
in  tariff  laws  until  the  nineteenth  century,  and  still  affects 
influential  thought  in  leading  nations — was  that  gold  and 
silver  alone  were  worth  seeking  as  wealth.  Hungry  and 
shivering  consumers  did  not  think  about  the  matter  at  all. 
The  fact  that  all  necessary  commodities  were  more  truly 
wealth  than  money  to  people  needing  them,  who  sooner 
or  later  included  everybody,  did  not  prevent  the  develop- 
ment of  the  Mercantile  idea  among  well-to-do  merchants, 
whose  needs  as  consumers  were  as  nothing  compared 
with  their  eager  desire  for  the  precious  coins.  Their 
motive  was  similar  to  that  of  the  miser.  The  purposes 
of  money  were  partly  lost  sight  of  ^ 

I  Money  as  the  Only  Real  Wealth.— Until  late  years,  it  seems,  the 
Mercantile  doctrine  was  understood  by  modern  economists  to  be  that  noth- 
ing  but  gold  and  silver  was  real  wealth.  Doubtless  this  statement  of  the 
doctrine  was  too  strong.  Even  now,  in  ordinary  demand,  money  is  the 
best  kind  of  wealth,  because  easily  changed  into  any  other  kind.     Viewed 

239 


240  The  Plain  Facts  as  to  the  Tariff. 

To  Cause  a  Nation  to  Sell  More  Than  it  Bought,  there- 
fore, that  a  balance  of  trade  might  be  collected  in  gold 
and  silver,  became  a  leading  object  of  statesmanship.  It 
was  even  felt  that  what  one  party  gained  in  a  trade  the 
other  lost,  which  is  true  only  when  one  is  cheated  or 
mistaken,  and  gets  something  different  from  what  he 
supposed  it  to  be.  Laws  were  made  to  prohibit  sending 
of  the  precious  metals  out  of  a  country,  and  tariff  taxes 
were  levied  on  goods  imported  from  abroad,  to  induce 
people  to  make  commodities  at  home,  that  an  unfavor- 
able balance  of  trade  might  be  guarded  against.  Of 
course  this  policy  lost  much  of  its  virtue  when  other 
nations  learned  the  same  practice.  Tariff  was  then  met 
by  tariff,  shrewdness  on  one  side  by  shrewdness  on  the 
other.  But  people  continued  as  before  to  want  many 
things,  without  regard  to  whether  they  were  produced 
at  home  or  not,  and  when  they  wanted  them  badly  they 
offered  higher  prices  for  them,  until  a  supply  came.^ 

superficially,  any  business  man  now  appears  to  be  ruled  by  the  Mercantile 
idea.  In  its  day  there  was  some  reason  for  it  in  the  fact  that  precious 
metals  from  Peru  were  then  flowing  into  Europe,  giving  opportunity  to  add 
materially  to  a  country's  stock  of  money.  Besides,  there  was  then  growing 
up,  on  the  decline  of  feudalism,  the  modem  system  of  using  money  to  pay 
taxes,  instead  of  rendering  military  service  to  the  king,  and  of  using  money 
to  pay  rents,  instead  of  delivering  a  share  of  the  crops.      (Ingram,  354  ) 

'  Smuggling. — The  excess  of  price  did  not  always  go  to  pay  the  tariff 
duty  and  the  high  profit  of  the  importing  merchant.  Smuggling  was  a 
common  and  profitable  crime  in  those  days,  especially  during  the  latter 
half  of  the  eighteenth  century.  By  reason  of  a  feeling  that  such  exorbitant 
duties  could  not  be  right,  the  smuggler  came  to  be  regarded  by  many,  not 
as  a  criminal  or  enemy  of  society,  but  as  a  brave  man  defying  or  evading 
unjust  restrictions.  Rev.  John  Wesley's  general  rules  for  the  Methodist 
societies,  published  about  a  century  and  a  half  ago,  contained  an  exhorta- 
tion against  buying  goods  on  which  the  duty  had  not  been  paid.  This 
indicates  that  such  goods  were  frequently  offered. 

Some  Importing  Prohibited. — After  1775  importation  into  England  of 
woolen  and  silk  goods,  and  of  cattle  and  salt  meat,  was  absolutely  prohibited. 


Foreign  Trade  and  Protection.  241 

To  Raise  Revenue  and  Start  Industries. — After  sounder 
notions  of  money  came  to  prevail,  the  object  of  getting 
the  precious  metals  from  other  nations  was  partly  dis- 
placed. One  object  then  of  import  duties  was  to  raise 
revenue  for  the  government.  Another  object  was  to 
develop  a  nation's  home  industries,  as  nearly  as  possible 
to  the  point  of  producing  everything  its  people  required. 
These  have  been  the  two  main  purposes  of  tariff  laws 
down  to  the  present  time.  Few  better  objects  than  the 
second  could  engage  a  government's  attention  so  long  as 
wise  methods  were  adhered  to.  Next  in  importance  to 
security  of  life  and  property  is  industrial  growth,  which 
furnishes  supplies  for  additional  people  to  live  upon,  and 
is  the  chief  means  of  developing  character  and  civilization. 
The  more  nearly  a  nation  produces  at  home  every  variety 
of  commodity  it  needs,  the  more  independent  it  may  be, 
and  the  better  prepared  to  bear  the  suspension  of  its 
foreign  trade  by  war.  Also,  the  more  closely  a  nation 
utilizes  its  varied  resources,  the  wider  is  the  opportunity 
for  choice  of  occupations,  and  the  higher  the  develop- 
ment of  individual  skill.  The  greater  the  variety  of 
industries,  the  fewer  the  competitors  of  each  person,  and 
the  greater  the  number  of  his  customers. 

Duties  on  grain  were  so  high  as  to  be  prohibitory  in  time  of  plenty.  There 
was  for  a  time  a  law  requiring,  under  strict  penalties,  that  the  dead  should 
be  buried  in  woolen  goods,  to  encourage  the  cloth  industry.  Bounties  were 
paid  to  start  new  industries  deemed  specially  desirable,  as  Germany  now 
does.  The  present  practice  prevailed  of  refunding  in  drawbacks,  on  im- 
ports sent  out  again,  the  duties  previously  paid  on  them  ;  and  home  prod- 
ucts taxed,  like  tobacco  in  America,  were  given  an  import  duty  to  balance 
the  internal  tax.  Reciprocity  treaties  were  also  made,  and  trade  with 
colonies  was  reserved  for  vessels  of  the  home  nation.  Internal  trade, 
though  far  more  important  than  foreign,  was  lightly  esteemed,  because  it 
brought  in  no  gold  from  abroad.  In  the  sixteenth  century  trade  restriction 
took  the  form  of  money  duties,  revenue  being  needed.  Previously  the 
restriction  consisted  of  outright  prohibition. 
16 


242  The  Plai?i  Facts  as  to  the  Tariff, 

Selling  Necessary  as  Well  as  Making. — But  a  person's 
net  profit,  the  increase  of  his  wealth,  depends  upon  the 
selhng  of  his  product  as  much  as  upon  the  making  of 
it.  Therefore,  if  a  tariff  duty  at  home,  shutting  out  for- 
eign goods,  prevented  one  from  exchanging  his  product 
abroad  for  things  of  more  selhng  value  than  the  best  he 
could  exchange  for  at  home,  the  excess  of  value  he 
would  fail  to  get.  He  would  be  poorer  by  that  amount. 
His  nation  would  be  poorer  too,  because  its  wealth,  ex- 
cepting a  few  public  buildings  and  army  supplies,  is  only 
the  aggregate  wealth  of  its  citizens.  It  would  have  its 
own  less  valuable  things  when  instead  it  might  have  had 
the  more  valuable  things  from  abroad.  The  foreign 
nation  would  fail  in  the  same  way  to  get  the  extra  value. 
Each  would  then  want  the  other's  product  more  than  its 
own. 

Admitting  Free  of  Duty  Goods  Not  Produced  at  Home. 
This  loss  has  been  avoided  under  a  protective  system 
by  admitting  free  of  duty  desired  goods  from  abroad 
that  are  not  produced  at  home.  Free  admission  by  the 
other  country  of  the  articles  to  be  exchanged  gives  to 
each  the  full  advantage  of  wealth  increase.  Such  an 
exchange  would  be  that  of  farming  tools  sent  from  the 
United  States  to  Brazil  and  paid  for  with  coffee.  These 
articles,  all  will  agree,  should  be  admitted  free  of  duty 
if  there  is  no  need  to  raise  revenue  from  them.  The  rea- 
son for  not  producing  them  at  home  is  ample.  The 
United  States  seems  to  have  no  climate  for  raising  coffee, 
and  the  Brazilians  are  not  a  mechanical  people. 

But  Ought  Not  a  Country  to  Develop  All  the  Resources 
it  does  possess,  and  thus  approach  nearest  to  the  position 
of  complete  economic  independence  ?  The  answer  to 
this  question  depends  upon  what  is  necessary  to  bring 


Foreign  Trade  and  Protectioti.  243 

about  that  development  —  whether  it  will  be  worth  its 
cost. 

When  Benefit  Exceeds  Cost  of  Protection.  —  When  a 
protective  duty  on  a  commodity  imported  will  induce 
persons  to  establish  its  production  at  home,  the  public 
advantage  of  possessing  another  industry,  to  employ  labor 
and  capital,  and  turn  untouched  raw  materials  into  wealth, 
unquestionably  justifies  the  imposition  of  the  duty  if  by 
the  tax  added  to  price,  and  by  the  stopping  of  exports 
that  tends  to  follow  stopping  of  imports,  the  people  are 
not  required  to  give  more  for  the  new  industry  than  it 
will  be  worth. 

Can  There  be  a  Case  in  which  loss  to  the  people  would 
not  be  greater  than  the  gain  ?  Yes,  there  doubtless  have 
been  cases  in  which  protection  happened  to  bring  good 
permanent  results,  and  with  much  less  of  the  chance  ele- 
ment than  there  is  in  calamities  bringing  good  in  the  end. 
If  the  resources  for  the  industry  are  ample,  if  it  would 
not  come  soon  anyhow,  and  if  the  duty  is  to  be  no  higher 
at  any  time  than  is  necessary  to  give  the  home  producer 
a  fair  profit  from  best  effort  on  his  own  part,  with  a  pros- 
pect of  removing  the  duty  within  a  reasonable  time — under 
these  conditions  it  will  generally  be  admitted  that  a  pro- 
tective tariff  may  be  of  great  public  benefit.  This  is  the 
"  infant  industry  "  argument. 

Protection  Best  Administered  by  a  Czar.  —  But  such 
complete  control  by  the  government  of  a  tariff  duty, 
changing  it  up  or  down  so  that  at  any  time  it  is  just  as  it 
ought  to  be,  might  be  possible  under  the  Czar  of  Russia, 
but  never  has  been  in  the  United  States  of  America. 
The  government  here  is  inevitably  the  creature  of  the 
people,  changed  in  Congress  every  two  years  to  conform 
to  their  will,  and  moulded  daily  by  what  their  prevailing 


244  ^^^^  Plain  Facts  as  to  the  Tariff. 

desires  are  supposed  to  be.  And  no  less  inevitable  is  it 
that  those  who  have  most  to  gain  from  government  action 
will  most  influence  it — tenfold  more  per  voter  than  other 
classes  not  directly  concerned.  For  these  reasons  it  has 
been  said  that  an  infant  industry  fostered  by  a  tariff  duty 
may  soon  collar  its  kind  benefactor,  and  fix  the  duty 
indefinitely  afterward  to  suit  itself. 

A  Protective  Tariff  Might  Develop  to  the  Utmost  a 
country's  resources  of  farm,  forest,  mine,  and  workshop, 
and  in  the  productive  energy  of  its  people,  if  the  tariff 
were  made  and  changed  by  a  wise  and  noble  despot, 
wholly  beyond  the  reach  of  selfish  petition  and  specious 
argument.  When  a  producer  had  lowered  the  cost  of 
his  product,  the  tariff  would  then  be  lowered  too,  so  that 
consumers  might  have  all  their  dues,  and  the  producer  no 
more  than  all  of  his.  Each  would  know  that  he  could 
have  a  duty  to  add  to  his  price  only  so  long  as  he  did  his 
best  to  reach  quickly  a  plane  of  unaided  self-support. 
When  the  prospect  of  reaching  this  plane  was  poor,  the 
duty  would  be  removed  and  the  industry  abolished,  and 
those  engaged  in  it  would  have  to  turn  to  something  else, 
in  which  they  could  make  articles  worth  their  cost,  and 
get  a  living  without  a  tax  on  the  people  added  to  selling 
price. 

But  Not  Among  a  Self-Governed  People.  —  Of  course,  no 
such  lofty  minded  potentate  has  ever  lived  on  earth,  or 
ever  will  live.  It  is  scarcely  more  likely  that  a  protec- 
tive tariff  in  America  will  ever  compare  long  in  justice 
with  the  ordinary  laws.  It  differs  essentially  from  them 
in  the  opportunity  it  affords  for  private  gain  at  unnoticed 
public  expense,  furnishing  "  a  powerful  motive  for  sub- 
scription to  campaign  funds,^  and  a  temptation  to  corrupt 

'Hadley,  440. 


Foreign  Trade  mid  Protectioti.  245 

practices."  A  large  Congress  of  two  houses  could  never 
change  a  tariff  schedule  with  sufificient  ease  and  prompt- 
ness to  keep  duties  continually  near  what  they  ought 
to  be.^ 

Money  Gain  Makes  Greatest  Activity  in  Politics.  —  No 
probable  development  of  intelligent  patriotism  among 
the  people  can  be  expected  soon  to  overcome  the  diffi- 
culty. A  man's  effort  to  know  and  do  his  whole  public 
duty  has  little  influence  on  the  votes  of  others  until  he 
begins  to  talk  and  work,  and  spend  time  and  money,  like 
a  candidate  for  office.  It  may  be  true  that  to  do  this 
disinterestedly  for  the  general  good,  without  reward  from 
the  party,  or  hope  of  special  gain  from  the  policy  advo- 
cated, would  oftener  arouse  suspicion  or  pity  than  com- 
mendation. It  is  probable  that  if  temperance  workers 
had  something  to  sell  in  place  of  whisky,  and  followed 

'Profits  Not  Higher  in  Protected  Industries. — It  is  not  meant  here 
that  profits  are  higher  in  protected  industries  than  in  others.  If  they  were 
higher,  and  the  industry  were  not  monopolized  by  a  trust,  new  concerns 
would  be  started  until  by  increasing  supply  and  lowering  price  the  rate  of 
profit  on  capital  was  brought  down  to  the  usual  level.  After  this  lowering 
of  profits,  the  only  gain  from  the  tariff  is  that  it  saves  its  beneficiaries  from 
the  trouble  and  loss  of  giving  up  one  business  and  starting  in  another.  If 
the  tariff  duty  had  never  been  levied,  they  would  not  have  gotten  into  their 
predicament.  But  until  they  can  offer  about  as  good  values  as  their  foreign 
competitor,  they  must  have  the  tariff  or  go  out  of  business. 

The  Loss  Caused  by  Delay  in  Giving  up  Protection. — The  tariff  is 
unjust  and  harmful  to  the  public  when  the  industry  fostered  is  not  promptly 
getting  ready  to  do  without  the  duty.  While  it  relies  on  the  duty,  its  capi- 
tal and  labor  are  not  earning  the  living  received.  Not  only  do  the  people 
give  free  to  the  industry  the  tariff  addition  to  price,  getting  no  more  value 
in  goods  than  they  could  get  abroad  without  that  price  addition,  but  they 
lose  the  advantage  of  having  this  capital  and  labor  in  some  other  industry, 
self-supporting,  whose  product  would  then  be  more  plentiful  for  home  use, 
or  by  shipment  abroad  would  make  imported  goods  more  plentifial.  A 
protective  tariff  has  therefore  the  effect  to  make  a  people  poorer  than  they 
would  otherwise  be.  It  turns  labor  and  capital  from  industries  yielding 
greatest  value  of  product  to  others  yielding  less  value. 


246  The  Plain  Facts  as  to  the  Tariff. 

the  methods  of  practical  pohtics,  using  money,  promising 
spoils,  and  making  little  pretense  of  morality  and  religion, 
they  would  be  regarded  differently  by  a  considerable 
class  who  now  hold  them  in  contempt. 

Work  for  Tariff  Reform  is  a  Thankless  Task.  —  Among 
consumers  no  pecuniary  self-interest  to  speak  of  is  in- 
volved—  not  that  the  money  cost  to  them  is  trivial,  but 
that  being  unconscious  of  it  they  are  not  concerned.  A 
tariff  duty  adding  tens  of  millions  of  dollars  to  the  in- 
come of  one  great  industry  may  not  directly  increase  the 
expense  of  an  average  family  five  dollars  a  year ;  and 
this  expense,  because  unknown,  may  pass  as  nothing.^ 
Merchants  importing  foreign  goods,  who  would  gain  from 
reduction  of  duties  and  larger  importations,  are  a  small 
class.  Other  merchants  are  not  concerned.  Wherever 
goods  are  made,  people  must  have  them,  and  a  profit 
must  be  allowed  to  the  seller.  For  these  reasons,  direct 
personal  gain  being  on  one  side,  against  what  at  least 
appears  to  be  only  the  general  good  on  the  other,  which 
in  this  question  few  voters  take  the  trouble  to  understand, 

1  How  Much  Does  the  Tariff  Cost  a  Family  ? — In  American  Social 
Science  Journal  of  1890  (Vol.  27,  p.  109)  Senator  Hoar  was  quoted  as 
saying  in  1888  that  the  tariff  cost  a  family  of  seven  (earning  $2.50  a  day) 
I50  a  year,  and  Carroll  D.  Wright  as  saying  that  its  cost  was  ^loo  to  a 
man  earning  ^1,000  a  year.  The  J50  estimate  now  seems  sufficient  for  a 
$1,000  salary  where  the  husband  wears  no  fine  imported  woolens  and  fur- 
nishings, the  wife  buys  few  fine  silks,  woolens,  linens,  cottons,  laces, 
gloves,  etc.,  and  the  table  is  not  generously  supplied  with  sugar,  raisins, 
oranges,  etc.  To  a  city  family,  living  well,  $100  may  be  nearer  the  correct 
figure.  Many  of  the  fine  goods  mentioned,  whether  made  at  home  or 
abroad,  are  increased  in  price  by  from  40  to  loo  per  cent.  Something  also 
is  added  to  retail  prices  by  the  duties  on  lumber,  iron,  and  other  materials, 
though  the  effect  of  our  protection  to  weaken  market  abroad  lowers  prices 
of  flour  and  butter.  To  a  working  man's  family  living  on  less  than  $500  a 
year,  using  common  groceries  and  wearing  cheap  clothing,  the  cost  of  the 
tariff  may  not  be  over  $20  a  year.  It  is  shown  in  Chapter  XIII.  that  the 
tariff  makes  no  net  addition  to  employment  and  wages. 


Foreign  Trade  and  Protection.  247 

effectual  reform  of  the  tariff  has  been  waiting  for  eco- 
nomic changes  to  show  clearly  its  advantage  to  impor- 
tant branches  of  business.  The  interests  of  American 
consumers  have  not  been  sufficient  to  affect  tariff  legisla- 
tion. The  employees  of  protected  industries  naturally 
feel  that  their  interests  are  with  their  employers.  Gain 
to  the  latter,  however  obtained,  the  skilled  workmen  they 
must  have  may  often  share  to  some  extent.  All  the 
workmen  share  it  when  this  gain  is  nothing  but  to  con- 
tinue in  business  undisturbed.  If  the  industry  were 
wholly  out  of  place  in  this  country,  and  never  could  exist 
without  a  high  tariff — a  clear  gift  from  consumers — its 
suspension  would  cause  its  workmen  the  trouble  of  find- 
ing other  employment. 

The  Historic  Opposition  to  Protection  in  the  South, 
arising  from  its  having  before  the  war  but  the  one  indus- 
try of  agriculture,  needing  no  tariff,  and  its  interest  in 
having  the  foreign  as  well  as  the  home  field  in  which  to 
sell  its  cotton  and  buy  manufactured  goods,  gave  way  to 
some  extent  in  1894  to  a  protective  sentiment  in  those 
states  which  now  have  iron,  coal,  lumber,  sugar,  and 
cotton  manufacturing  industries. 

Perhaps  Censure  is  Not  Deserved  by  Either  Side  in  the 
tariff  controversy.  People's  opinions  are  seldom  con- 
trary to  their  immediate  self-interest.  The  average  voter, 
with  the  disconnected  information  he  gets,  cannot  be 
expected  to  study  out  the  truth  here  involved,  and  then 
to  vote  for  it  intelligently  and  persistently.  Aside  from 
the  practice  of  following  party  without  question,  it  is 
easy  for  him  to  feel  that  if  any  net  advantage  is  to  be 
obtained  from  tariff  reform,  it  is  too  distant,  and  too  un- 
certain, to  justify  his  hearty  support  of  it.  The  manu- 
facturer whose  business  depends  to  any  extent  upon  a 


248  The  Plain  Facts  as  to  the  Tariff. 

protective  duty,  may  not  even  force  himself,  if  he  tried, 
to  perceive  the  scientific  truth  of  the  doctrine  of  free 
trade.  Like  him,  his  employees,  the  merchants  who  sell 
to  them,  and  the  people  in  general  of  the  entire  district 
benefited  by  his  industry,  will  mainly  be  protectionists. 
They  all  may  be  excused  by  saying  they  could  not  help 
believing  an  old  doctrine  that  is  not  true  when  it  is  a 
source  of  gain  or  advantage.^ 

The  Fact  that  Common  Sense  in  the  Past  has  Approved 
Protection  enables  these  people,  with  some  show  of  con- 
science, to  look  away  from  its  weak  points.  But  the 
common  sense  of  the  past  also  approved  or  permitted 
conquest  for  tribute,  slavery,  royal  grants  of  monopoly 
for  the  sale  of  necessary  commodities,  forced  tolls  along 
navigable  rivers,  and  tariffs  between  portions  of  the  same 
country.^     Protective  tariffs  as  known  to-day  were  devised 

1  Spending  from  the  Treasury  to  Retain  Protection. — Nor  could 
they  easily  avoid  believing  in  other  policies  that  contribute  to  that  gain.  It 
is  well  known  that  the  reasons  for  the  present  payment  of  $140,000,000  a 
year  in  pensions  comprised  more  than  the  admitted  duty  of  helping  needy 
soldiers,  and  more  than  the  votes  to  be  gained  or  held  by  paying  that  vast 
sum  to  nearly  a  million  pensioners.  A  strong  motive  for  the  later  pension 
laws,  and  for  unchecked  spending  in  other  ways,  was  to  make  a  con- 
tinuing need  for  the  revenue  derived  from  the  tariff,  and  thus  to  retain  pro- 
tection as  a  permanent  policy.  (Adams,  81.)  The  war  debt  having  been 
chiefly  paid,  and  a  great  surplus  accumulating  in  the  treasury,  high  protec- 
tion was  then  (1880-90)  in  danger  of  public  disfavor  from  lack  of  good 
reasons  for  its  continuance.  Pensions  paid  aggregate  1^2,763,350,033,  from 
1790  to  1 901. 

^  Tariffs  Between  Parts  of  the  Same  Country. — Between  the  provinces 
of  France  there  were  tariffs  until  the  Revolution  of  1789,  which  swept  them 
away,  with  other  harmful  infringements  of  liberty.  At  the  present  time, 
to  raise  local  revenue,  the  cities  of  Southern  Europe  levy  a  burdensome 
duty,  called  the  octroi,  on  food  and  materials  brought  into  town.  France 
has  had  in  late  years  over  1,400  communes  with  such  a  tax.  (Roberts,  53- ) 
The  octroi  duties  of  Paris,  in  1866,  reached  ^8  per  inhabitant.  In  Italy, 
within  the  last  several  years,  the  miserably  poor  people  have  given  way 
to  rioting  over  the  octroi.     Americans  can  imagine  the  vexation  and  loss, 


Foreign  Trade  and  Protection.  249 

and  continued  for  a  similar  purpose,  namely,  to  benefit 
the  people  favored  by  forcing  value  from  others,  or  by 
preventing  them  from  getting  value.  The  doctrine  has 
survived  because  the  element  of  injustice  is  usually  small, 
is  generally  unnoticed,  can  be  excused  by  claims  of  patri- 
otism, and  may  be  overcome  by  growth  of  home  compe- 
tition in  the  favored  industry. 

Protection  Might  be  Good  for  a  Dull  People. — Further 
examining  the  doctrine  of  protection,  it  is  probably  true 
that  a  carefully  levied  and  well  controlled  protective  tariff, 
as  indicated  above,  might  be  useful  in  a  newly  acquired 
colony  of  stagnant  civilization,  whose  people  needed  to 
be  waked  up  and  put  to  work  in  better  lines.  Such  a 
tariff  might  possibly  have  the  same  beneficial  effects  in  a 
new  country  with  rich  resources  somewhat  difficult  to 
develop,  before  which  industry  paused  timid  and  hesitat- 
ing, if  outside  capital  could  thus  be  induced  to  start  in- 
dustries decidedly  suitable,  or  if  there  were  home  labor 
and  capital  not  already  employed  to  best  advantage.  In 
these  cases  the  starting  of  some  new  industries,  to  increase 
wealth,  employment,  and  purchasing  power,  might  be  of 
more  value  to  consumers  of  settled  occupation  than  the 
price  added  to  some  commodities  by  a  duty  on  imports. 

to  both  sellers  and  buyers,  of  tariffs  against  goods  brought  into  cities  and 
states.  A  certain  town  in  Virginia  remembers  vividly  the  effect  of  a  market 
house  ordinance  in  driving  the  farmers  and  their  custom  to  adjacent  vil- 
lages. For  the  same  reason  turnpike  tolls  have  been  abolished  in  most 
states.  A  national  tarifiT  is  really  the  same  evil,  in  a  form  less  acute.  Be- 
cause free  trade  is  good  among  all  our  states  it  v/ould  also  be  good,  if  once 
established,  with  Canada  and  with  every  land.  Many  people  in  New  York 
and  Chicago  are  just  as  foreign  as  those  in  Europe.  Each  person  has  only 
such  dealings  with  others,  wherever  they  may  be,  as  are  to  his  own  advan- 
tage. The  refusal  in  some  cases  by  workmen  in  Chicago  building  trades 
to  use  materials  made  outside  the  city  was  a  form  of  protection  about  as 
sound  as  other  forms.     (Spahr,  l8l. ) 


250  The  Plain  Facts  as  to  the  Tariff. 

The  industries  might  not  come  otherwise.  People  need- 
ing to  be  encouraged  thus  to  engage  in  industry  might 
not  soon  master  the  government  for  the  sake  of  control- 
hng  the  tariff  from  which  they  profited.  With  them 
therefore  a  government  of  ordinary  wisdom  and  purity 
might  suffice  for  tariff  legislation  that  would  result  in 
considerably  more  good  than  harm  ;  though  even  here, 
in  modern  times,  there  would  probably  be  better  ways 
of  developing  industry. 

But  Clearly  Protection  is  Not  the  Ideal  Condition  of 
industry  among  people  of  advanced  civilization.  Such 
people  learn  best  for  themselves  which  occupations  yield 
largest  returns,  and  engage  in  them  without  being  paid 
to  do  so.  Not  only  is  their  government's  knowledge  of 
the  situation  no  better  than  that  of  the  leading  class  in 
any  line  of  industry,  and  not  only  is  it  impossible  for  a 
Congress  of  men,  not  of  angels,  to  avoid  being  drawn 
into  favoring  some  by  injuring  others,  but  the  best  tariff 
system  conceivable  would  be  more  likely  to  hinder  than 
to  promote  wealth  production  in  the  aggregate. 

The  Natural  Protection  that  Every  Person  Everywhere 
Possesses  in  his  business  has  been  hidden  from  view  by 
the  growth  of  modern  civilization  under  protective  tariffs, 
constantly  defended  by  the  classes  favored.  The  idea 
that  highest  development  of  wealth  production  depends 
upon  protective  tariffs  gives  way  quickly  when  one's  in- 
quiry is  carried  below  the  surface  of  the  subject.  Every 
producer's  effort  is  naturally  protected  by  the  fact  that 
he  gets  and  has  only  what  he  himself  grows  or  makes. 
No  matter  how  much  cheaper  his  product  may  be  made 
by  others,  if  he  is  in  the  best  field  open  to  him  he  can- 
not give  up  making  it  and  buy  of  them.  To  have  any- 
thing, either  to  use  or  buy  with,  he  must  continue  his 


Foreign  Trade  and  Protection.  2  5  i 

own  or  some  other  kind  of  production.  He  could  not  be 
crowded  into  idleness  if  he  wanted  to  be.  He  must  con- 
tinue to  produce  in  order  to  live.  So  it  is  with  every 
worker  in  the  country.  Not  one  of  them,  unless  he  had 
savings  or  friends  to  live  upon,  could  give  up  labor  or 
production  of  some  kind  if  foreign  people  made  his  prod- 
uct for  half  its  cost  to  him.  Therefore,  as  every  person 
buying  goods  shipped  in  from  abroad  must  first  have 
produced  something  at  home  to  exchange  for  the  neces- 
sary money,  importing  goods  can  never  stop  home  indus- 
try until  they  are  shipped  in  to  be  given  away  free.  Nor 
can  importing  drive  unprotected  producers  from  one  in- 
dustry to  another,  when  each  has  chosen  the  best  avail- 
able field,  except  by  product-cheapening  improvements, 
which  have  the  same  effect  when  introduced  at  home. 

Buyers  Know  What  They  Want. — Now  these  enlight- 
ened people  are  more  likely  to  know  than  an  influenced 
government  what  goods  they  want  and  ought  to  have.* 

'  To  Force  People's  Wants  in  Other  Ways  besides  protection  is  some- 
times a  temptation.  Such  is  the  effect  of  laws  against  oleomargarine, 
further  than  to  prevent  deception  by  passing  it  for  real  butter.  If  law  and 
opinion  permitted  dealers  to  handle  oleomargarine  freely,  they  would  be 
content  with  less  profit  on  it,  offering  it  for  sale  everywhere,  and  poor  peo- 
ple using  little  or  no  butter  would  find  in  the  former  a  wholesome  substitute 
they  could  afford  to  use  largely,  while  others  preferring  real  butter  might 
buy  the  dairyman's  product  as  before.  The  living  of  those  having  least 
would  then  be  increased,  and  by  saving  beef  suet  of  low  value,  thus  adding 
to  wealth.  If  butter  fell  somewhat  in  price,  larger  use  of  it  might  maintain 
the  profits  of  its  production,  but  whether  or  not  that  occurred,  the  con- 
sumer's gain  in  such  cases,  in  society  as  a  whole,  greatly  outweighs  the 
producer's  loss.  What  is  saved  in  buying  one  article  is  spent  for  other 
things,  and  the  total  quantity  of  production  is  increased.  In  people's 
necessity  by  nature  for  food,  and  in  the  lack  of  it  among  many  millions,  to 
prevent  this  necessity  from  being  lessened  by  choice  of  oleomargarine  is 
the  same  in  principle  as  a  doctor's  making  a  market  for  his  services  by 
keeping  a  patient  sick. 

The  Monopoly  Spirit  and  Oleomargarine. — In  the  dairymen's  present 


252  TJic  Plain  Facts  as  to  the  Tariff. 

A  person  buys  an  article  shipped  from  abroad  because 
he  wants  it  most,  and  thus  gets  most  value  for  his  money. 
All  value  is  only  the  measure  of  want  or  desire.  Goods 
would  not  be  imported  if  they  were  not  bought,  and  they 
would  not  be  bought  if  they  were  not  the  most  valuable 

effort,  after  their  defeat  last  year,  to  induce  Congress  to  levy  a  tax  of  ten 
cents  a  pound  on  substances  colored  to  imitate  butter,  it  is  difficult  to  per- 
ceive a  motive  other  than  that  which  influenced  men  in  times  past  who  held 
tenaciously  to  monopolies  granted  them  by  the  king.  Even  if  oleomar- 
garine were  unwholesome,  practically  never  claimed,  dairymen's  action 
against  it  would  be  questionable.  It  is  now  taxed  two  cents  a  pound,  and  by 
reason  of  the  tax  stamp  its  packages  must  bear,  and  by  placards  required  by 
some  states  announcing  that  "oleomargarine  is  sold  here,"  it  cannot  well 
be  sold  by  deception  for  butter.  Laws  to  prohibit  coloring  it  yellow  (set 
aside  in  some  states  because  not  applying  also  to  butter)  are  a  confession 
that  it  is  so  nearly  as  good  as  butter  that  users  cannot  tell  the  difference. 
A  different  color,  in  addition  to  the  stamp  label,  would  tend  to  turn  the 
palate  against  it.  Claiming  "  any  shade  of  yellow  "  as  the  trademark  of 
butter,  might  not  leave  another  suitable  color.  It  seems  that  butter  is  too 
good  an  article  to  require  forcing  on  people  by  taking  away  their  supply  of 
other  things.  If  Chicago  meat  packers  are  monopolists  by  means  of  illegal 
freight  rates,  dairymen  taking  a  right  view  could  scarcely  desire  to  follow 
the  same  spirit  by  means  of  law.  Who  believes  this  bill  (probably  to  be 
enacted)  is  really  intended  to  protect  from  deception  ?  It  may  not  bear  test 
by  the  rule  of  courts  against  laws  not  designed  for  what  they  pretend  to  do. 
Rejection  by  the  House,  when  passing  the  bill,  of  an  amendment  permit- 
ting oleomargarine  to  be  sold  in  pound  packages  only,  each  to  bear  the 
name  in  sunken  letters,  shows  that  prevention  of  deception  is  not  the  ob- 
ject, but  destruction  of  the  oleomargarine  trade.  Such  an  extension  of  the 
protective  principle  to  interior  trade  is  not  surprising.  The  bill's  permis- 
sion to  states  to  control  oleomargarine  traffic  will  be  important.  The  laws 
of  thirty-two  of  them  prohibiting  its  manufacture  within  their  borders  are 
void  against  inward  shipments  of  it  from  other  states. 

"  Cheap  and  Nasty  is  the  expressive  term  applied  to  some  British  prod- 
ucts. ...  It  should  be  borne  in  mind  that  the  sole  aim  of  cheapness  tends 
to  inferiority  of  quality."  (Stebbins,  53.)  This  might  be  called  kind 
advice  to  buyers.  Some  will  remember  the  "cheap  coat,  cheap  man" 
argument  used  in  1888.  On  the  contrary,  according  to  Jacob  Schoenhofs 
article  in  77/1?  Forum  of  June,  1900,  the  tariff  on  wool  has  led  to  lai^e  use 
of  shoddy  and  cotton  in  cloth  sold  at  good  prices  under  the  75  per  cent  pro- 
tection on  woolens. 


Foreign  Trade  and  Protection.  253 

offered  at  the  price.  The  more  imported  goods  are 
bought,  the  greater  is  the  excess  of  value  obtained  by 
the  buyers  over  the  best  they  could  have  obtained  by 
purchasing  goods  made  at  home.  What  is  this  excess 
of  value  but  added  wealth  ?  What  measures  a  person's 
or  a  country's  wealth  but  the  sum  of  the  values  of  the 
things  owned  ? 

People  Cannot  Pay  Out  More  Than  They  Have  Taken 
In. — Could  not  this  be  overdone,  until  a  country's  money 
were  all  drained  off  abroad  by  purchasing  imported  goods? 
Certainly,  it  could  be  and  would  be  if  people  kept  on  buy- 
ing with  cash  until  their  last  dollar  was  paid  out.  But 
nature's  protection  to  home  industry  includes  this  danger 
also.  Getting  a  living  is  a  continuing  process.  No  per- 
son, no  family,  no  city  or  country,  can  pay  out  more 
money  than  has  been  taken  in.  And  to  get  the  neces- 
sary money,  labor,  crops,  or  goods  of  some  kind  must 
continue  to  be  sold  if  buying  is  to  continue.  Therefore, 
a  country  could  not,  if  it  desired,  continue  long  to  buy 
more  goods  from  abroad  than  foreign  countries  bought 
of  it.  The  fact  is  that  the  people  of  each  nation  pay 
those  of  the  other  with  goods,  not  with  money.  As  will 
be  explained  presently,  very  little  money  is  shipped,  each 
country  keeping  the  money  it  had.  On  each  side  in  the 
exchange  the  country  gets  goods  worth  more  to  it  than 
those  sent  out,  increasing  its  wealth  by  the  excess  of 
value.  Under  perfect  free  trade  this  process  would  give 
an  enlightened  people  the  largest  possible  increase  of 
wealth,  the  most  desirable  variety  and  quality  of  com- 
modities, and  the  highest  development  away  from  self- 
injuring  narrow-mindedness  up  towards  the  great  truth  ^ 

'  Common  Sense  and  Professors'  Theories. — Defenders  of  protec- 
tection,  perceiving  the  logic  of  free  trade,  have  been  in  the  habit  of  call- 


254  T^^^^  Plain  Facts  as  to  the  Tariff. 

that  what  is  best  for  all  mankind  is  eventually  best  for 
every  person  everywhere. 

Prudent  People  Find  a  Way  to  Stop  Paying  Out  Their 
Money  before  it  runs  low.  But  if  they  did  not,  and 
kept  on  shipping  it  out  to  pay  for  imported  goods,  some 
would  soon  be  unable  to  buy.  Narrowing  of  demand 
and  scarcity  of  money  would  lower  prices,  foreign  goods 
would  then  be  taken  elsewhere  where  prices  were  higher, 
and  foreign  money  would  be  sent  in  to  get  bargains  in 
home  products.  The  country's  proper  share  of  metal 
money  would  thus  be  restored,  and  prices  raised  in  time 
to  the  normal  level.  Or,  describing  the  same  process  as  it 
actually  takes  place,  when  a  country's  exports  fall  below 
its  imports,  with  outward  shipments  of  gold,  bankers 
become    more  cautious,   and   restrict    loans ;    and  from 

ing  theirs  the  arguments  of  common  sense  business  men,  and  free  trade 
principles  the  impractical  theories  of  professors  (suggesting  the  kind  that 
have  to  be  led  in  out  of  the  rain).  Doubtless  fine-spun  theories  of  little 
force  have  been  advanced  for  free  trade,  but  not  often  for  the  sake  of  the 
advantage  there  is  in  it  for  a  class,  which  is  the  chief  motive  for  defence  of 
protection.  The  latter' s  arguments  for  making  trade  and  enriching  the 
people  appear  at  their  best  when  received  with  the  common  sense  that  is 
convinced  easily — that  never  takes  the  trouble  to  inquire  after  the  truth. 
That  people  cannot  continue  buying  unless  they  continue  producing  some- 
thing to  buy  with,  and  that  they  do  not  buy  or  trade  at  all  unless  they  get 
thus  what  they  want  most,  are  free  trade  truths  that  seem  sufficiently  com- 
mon-place. 

The  Unanswerable  Reason  for  Protection  was  grasped  by  a  Cali- 
fornia nurseryman.  He  ingenuously  said  to  fellow  traveler  :  "I  used  to 
be  undecided  on  this  tariflf  question  ;  but  when  I  saw  the  difference  made 
in  raisin  growing  by  the  Dingley  bill — loo  per  cent  profit  after  the  hard 
times — I  knew  at  last  that  protection  was  the  right  thing."  It  was 
enough  to  know  there  was  money  in  it ;  the  case  of  the  consumer  was  no 
affair  of  his.  The  time  necessary  for  lowering  price  by  increasing  produc- 
tion was  evidently  to  be  long,  or  the  tariff  advantage  would  not  have  been 
valuable.  The  fact  that  the  duty  of  2 j^  cents  a  pound  on  raisins  costs  few 
families  as  much  as  ;^l  a  year,  really  makes  the  case  worse.  If  it  cost  $lo 
a  year  the  people  might  not  allow  it  to  continue. 


Foreign  Trade  and  Protection.  255 

scarcity  of  money  people  soon  begin  to  feel  poorer,  and 
check  their  buying  of  all  goods,  foreign  and  domestic. 

Goods  Traded  for  Goods.  —  Hence,  to  make  readier  sale 
and  better  prices,  shippers  of  foreign  goods  into  a  coun- 
try not  having  already  an  established  export  trade,  do 
not  expect  pay  from  its  scanty  stock  of  money,  which 
may  include  no  gold,  but  consist  of  silver  and  copper  of 
various  coinage.  They  arrange  to  take  instead  those 
products  that  sell  to  best  advantage  in  their  own  land. 
Cloth,  weapons,  and  utensils  sent  or  brought  from  Eng- 
land and  Germany  to  poor  or  undeveloped  countries, 
such  as  Morocco,  Haiti,  Costa  Rica,  and  the  Pacific 
islands,  must  usually  be  traded  for  other  goods.  Such 
countries  have  little  money  to  pay  that  foreign  traders 
would  accept  to  take  home,  and  could  not  buy  if  money 
alone  were  demanded.  Merchants  at  their  ports,  gener- 
ally foreigners,  being  buyers  of  home  products  there 
marketed,  exchange  them  for  such  foreign  goods  as  are 
demanded — sending  the  home  products  to  a  foreign  land, 
and  with  the  money  they  bring  buying  a  new  stock  of 
manufactures.  Getting  a  profit  on  both  the  home  and 
the  foreign  goods  gives  large  gains  to  such  trading 
before  too  many  have  engaged  in  it.  The  early  fur 
traders  among  the  Indians  in  the  Northwest  enjoyed  such 
profits,  as  did  the  English,  Portuguese,  and  Dutch  who 
opened  up  the  trade  of  the  East  Indies.  American  coun- 
try merchants,  especially  in  the  mountains  of  the  Southern 
States,  now  trade  goods  for  goods  in  a  similar  way,  not 
paying  cash  for  farm  produce.  In  the  barbarous  lands 
mentioned  above,  whether  or  not  the  same  merchant 
buys  native  products  and  brings  in  foreign  goods  also, 
the  process  is  unchanged.  Where  the  business  con- 
tinues, an  outflow  of  native  products  is  kept  up  by  some- 


256  The  Plain  Facts  as  to  the  Tariff. 

body  that  balances  the  inflow  of  foreign  goods.  The 
same  is  true  of  the  greatest  and  richest  nations,  as  of 
every  town  and  county  in  America,  and  of  every  family 
not  living  on  savings  or  outside  assistance.  A  family 
may  exchange  its  labor.  Use  of  money  does  not  change 
the  process.      Goods  are  traded  for  goods. 

Inflow  and  Outflow  of  Gold.  —  Outflow  of  gold  from 
an  enlightened  nation,  therefore,  is  stopped  by  scarcity 
of  money,  falling  prices,  and  restriction  of  the  purchase 
of  imports,  through  fear  of  hard  times.  Inflow  of  gold, 
on  the  contrary,  is  soon  stopped  by  its  effect  to  increase 
purchases  of  foreign  goods,  money  being  plentiful  at 
home  and  prices  low  abroad  ;  and  inflow  is  also  checked 
by  restriction  in  buying,  as  just  described,  in  the  coun- 
tries to  which  exports  are  sent,  money  there  being 
scarce  by  reason  of  the  outflow  to  the  country  considered. 
Besides,  high  prices  in  this  country  may  check  exports, 
as  was  lately  the  case  with  American  corn  (shipments  in 
last  December  being  less  than  a  tenth  those  of  Decem- 
ber, 1900);  and  the  high  prices  will  also  attract  imports 
that  are  admitted.  By  decreasing  exports,  with  increas- 
ing imports,  this  country's  excessive  stock  of  gold  is 
then  reduced  by  outflow  to  its  normal  share,  giving  to 
other  countries  their  normal  shares.  Exchange  bankers, 
described  in  the  next  chapter,  watch  each  country's  need 
of  gold  so  closely  in  interest  rates  that  the  share  it  pos- 
sesses is  usually  just  what  its  proportion  of  the  world's 
business  requires.  By  their  own  self-interest  the  quan- 
tity of  gold  is  regulated.  Protective  tariffs  have  no 
direct  effect.' 

'  The  Bad  Condition  of  Japanese  Finances  in  the  early  part  of  1901 
was  the  result  of  extravagant  spending  and  over-investment,  caused  by 
large  and  unnatural  inflow  of  money  from  government  loans,  and  from  the 


Foreign  Trade  and  Protection.  257 

In  Richer  Nations  Imports  Are  Bought  With  Money. — 

In  the  richer  nations  of  Europe  an  American  manufac- 
turer introducing  his  goods  looks  only  for  money,  as  he 
does  at  home.  Buyers  in  these  countries  are  well  able 
to  provide  a  money  supply.  Commerce  is  established, 
with  an  export  trade  sufficient  to  balance  the  import 
trade,  and  prevent  an  outward  drain  of  gold.  Importing 
merchants  in  America  buy  in  England,  France,  and  Ger- 
many the  woolens,  silks,  and  pottery  they  can  sell  at  a 
profit.  Such  merchants  as  John  Wanamaker,  Marshall 
Field,  and  John  V.  Farwell  have  offices  and  buyers  in 
the  manufacturing  centers  of  Europe  ;  while  European 
manufacturers,  especially  with  fine  dry  goods,  maintain 
selling  agencies  in  New  York,  and  send  traveling  men  to 
wholesalers  in  the  interior  cities.  Dealers  in  nations  of 
this  class  send  abroad  for  what  they  want,  or  give  orders 
to  foreign  agents.  An  American  exporter  of  wheat,  be- 
fore he  ships,  gets  a  telegraphic  order  from  a  Liverpool 
importer,  which  order  may  come  in  response  to  a  tele- 
gram sent  offering  wheat  at  a  stated  price.  It  is  to  the 
South  American,  African,  and  Asiatic  ports  that  a  vessel 
is  sometimes  sent  in  the  old  way,  with  a  cargo  of  goods 
not  previously  ordered,  to  be  exchanged  for  goods  or 
money  as  circumstances  may  determine.  In  the  eight- 
eenth century  rum  and  trinkets  were  regularly  taken  to 
the  coast  of  Guinea  and  exchanged  for  slaves.^ 

Chinese  war  indemnity.  Excessive  spending  for  imports  caused  $24,000,000 
of  gold  to  flow  outward  in  1900.  Lately  the  balance  of  Japanese  trade  has 
changed,  bringing  inflow  of  gold. 

*  Introducing  Goods  Abroad. — Manufacturers  in  the  commercial  coun- 
tries now  send  men  all  over  the  world  to  establish  agencies,  and  to  in- 
duce local  merchants  to  handle  and  order  their  goods.  American  farming 
machinery  has  long  been  known  and  ordered  by  dealers  wherever  much  of 
it  is  needed.  Companies  doing  business  on  a  large  scale,  such  as  the  Singer 
Sewing  Machine  Company,  the   McCormick   Harvesting   Machine  Com- 

17 


258  TJic  Plain  Facts  as  to  the  Tariff. 

No  Danger  of  Poverty  from  Free  Trade.  —  All  these 
things  being  true,  as  to  exchange  of  goods  for  goods,  it 
will  be  seen  that  there  is  no  danger  of  poverty  from  free 
trade.  People  will  not  buy  unless  foreign  goods  are 
more  desired  than  their  cost ;  and  whatever  the  purchase 
or  exchange,  they  get  back  something  for  what  they 
give.  Not  only  can  there  be  no  loss,  but  under  free 
trade,  as  stated  before,  an  advanced  people  can  accumu- 
late wealth  most  rapidly  and  certainly. 

A  System  of  Industry  in  a  New  Country  or  section, 
settled  by  progressive  people,  would  ordinarily  be  de- 
veloped in  about  the  same  way  as  was  the  system  of  the 
United  States.  When  so  many  persons  have  engaged  in 
the  first  industries  of  farming,  stock  raising,  mining,  and 
lumbering,  that  prices  of  these  products  fall,  or  from 
lack  of  inland  transportation  the  point  of  diminishing 
returns  is  approached  in  their  production — long  before 
that  time  as  a  rule — men  of  enterprise  with  some  capital 
notice  opportunities  for  gain  in  new  occupations  for  which 
demand  is  springing  up.  As  the  American  coast  cities 
grew,  and  as  the  people  in  the  settled  regions  developed 
wants  and  means  for  a  larger  supply  of  goods  of  finer 

pany,  and  the  Standard  Oil  Company,  maintain  their  own  warehouses  and 
selling  agents  in  all  countries  affording  a  sufficient  market.  In  the  more 
backward  countries,  not  having  reliable  importing  merchants,  foreign  sellers 
must  establish  their  own  agencies.  This  is  the  case  in  Greece,  as  lately  ex- 
plained in  a  published  letter  from  the  American  consul.  British  and  Ger- 
man exporters  have  agents  there,  who  push  the  sale  of  goods,  and  attend 
to  credits  and  collections.  German  manufacturers  have  started  in  recent 
years  many  agencies  in  Brazil  and  Mexico.  It  is  for  introducing  goods  in 
our  new  possessions  that  attention  has  been  directed  to  learning  the  Span- 
ish language.  The  American  Export  Association,  which  serves  any  manu- 
facturer by  selling  his  goods  in  any  part  of  the  world,  is  described  in  the 
IVorld^s  /Mi/'-i  of  January,  I902. 


Foreign  Trade  and  Protection.  259 

manufacture,  men  engaged  in  new  industries  undaunted 
by  competition  from  Europe. 

Rise  of  Mamifacturing^  in  the  American  Colonies.  — 
"  The  industries  that  now  constitute  the  bulk  of  our 
manufactures  had  their  origin  in  colonial  days."  ^  Shoes 
were  exported  from  Lynn  in  165  i.  A  permanent  iron 
furnace  was  started  in  Massachusetts  in  1644,  one  built 
in  Virginia  in  1619  having  been  destroyed  by  Indians. 
After  1725  iron  was  regularly  exported,  and  many  iron 
works  were  operated  in  the  middle  colonies.  Besides 
household  production  of  clothing  everywhere,  manufac- 
ture of  flax  and  woolen  cloth  was  followed  as  a  regular 
occupation  in  all  except  the  Southern  colonies,  in  which 
effort  was  confined  to  the  profitable  crop  of  tobacco, 
readily  exchanged  for  manufactures  from  Europe.  In 
1770  there  were  forty  paper  mills  in  Pennsylvania,  New 
Jersey  and  Delaware  ;  ^  and  Pennsylvania  had  then  prob- 
ably sixty  iron  furnaces  (Levasseur).  Connecticut  and 
Pennsylvania  had  thoroughly  established  before  1789  the 
variety  of  metal  industries  for  which  they  have  ever  since 
been  noted.  In  that  year  234  of  the  700  families  in  Lan- 
caster were  engaged  in  manufacturing.  But  the  greatest 
industry  of  all  was  shipbuilding  and  ocean  carrying,  which 
grew  up  from  the  beginning  in  the  Northern  colonies,  and 
became  important  in  the  South  also  before  1789.  In  the 
one  year  1769  a  total  of  389  vessels  were  built,  aggre- 
gating 20,000  tons.  Manufactures  in  1789,  it  was  esti- 
mated twenty  years  later,  reached  a  total  output  in  value 

^Wright,  loi.  Most  of  the  information  here  given  is  taken  from  his 
valuable  book. 

2  A  full  account  of  the  rise  of  all  American  industries  is  given  by  Wright, 
and  brief  outlines  by  Bullock  and  Levasseur.  The  information  above  re- 
garding paper  mills  is  taken  from  The  Story  of  Paper  Alaking,  J.  W.  Butler 
Paper  Co.,  Chicago,  1900, 


26o  TJic  Plain  Facts  as  to  the  Tariff. 

of  ;^20, 000,000,  of  which  the  exports  amounted  to  $\,- 
000,000.  In  1 79 1  over  1,000,000  bushels  of  wheat 
were  exported,  and  in  1792  sawed  lumber  to  the  amount 
of  66,000,000  feet,  besides  timber  and  staves. 

Alexander  Hamilton's  Report  on  Manufactures,  in  1791, 
gives  a  long  list  of  articles  then  made  on  a  considerable 
scale.  The  principal  were  the  following  :  Leather,  shoes, 
harness ;  iron  bars  and  sheets,  steel,  nails,  implements, 
tools,  utensils,  arms,  carriages ;  ships,  furniture,  cooper- 
age ;  cables,  cordage,  sail-cloth  ;  paper  of  various  kinds, 
and  paste-board  ;  hats  of  fur  and  wool ;  copper,  brass  and 
tin  wares.  Besides  the  production  of  these  and  many- 
other  articles  mentioned,  carried  on  as  regular  trades, 
there  was  "a  vast  scene  of  household  manufacturing."  ^ 

Colonial  Manufacturing  Restricted  by  England. — All 
this  was  done,  not  under  protection,  but  under  attempts 
at  suppression.  Before  the  Revolution,  EngHsh  tariffs 
were  made  to  hinder,  not  to  help  American  manufactur- 
ing. The  intention  was  to  keep  the  colonies  engaged 
in  producing  raw  materials  for  England,  that  the  latter 
might  be  well  supplied  with  these,  and  also  that  the 
colonial  market  might  be  reserved  for  her  manufactures. 
In  1699  Parliament  prohibited  the  exportation  of  wool 
and  woolen  goods  from  the  colonies,  and  in  1731  the 
exportation  of  hats.  The  making  of  cloth  in  New  York 
was  prohibited  by  Holland  with  heavy  penalties.  In 
1750  Parliament  forbade  the  erection  of  new  iron  forges, 
rolling  mills,  and  slitting  mills,  to  restrict  the  colonies  to 
the  production  of  pig  and  bar  iron.  Colonial  manufac- 
turing, therefore,  developed  "  not  only  in  the  face  of 
English  competition,  but  in  spite  of  repeated  attempts  to 
destroy  these  industries."  ^ 

1  Bullock,  52.  2  Bullock,  50. 


Foreign  Trade  and  Protection.  26 1 

Did  the  Independent  Country  Need  Protection? — After 
the  peace  of  1783  many  enterprises  made  necessary  by 
the  Revolutionary  War  ^  were  suspended,  commerce  hav- 
ing been  resumed  with  England,  whose  steam  engines 
and  machines  for  spinning  and  weaving  (invented  1767— 
85)  had  meanwhile  been  rapidly  developed.  The  diffi- 
culties of  hurriedly  starting  these  American  enterprises, 
in  conditions  not  yet  ready  for  them,  and  the  necessity 
to  consumers  of  having  to  put  up  with  unsatisfactory 
goods,  were  only  a  part  of  the  losses  of  war,  whatever  the 
value  of  the  experience.  Men  abandoned  these  industries 
because  better  business  was  at  hand,  yielding  products 
whose  exchange  for  foreign  wares  was  a  benefit  to  all 
concerned.  But  American  manufacturing  as  a  whole 
remained  vigorous,  as  shown  above  in  the  figures  for 
1789.  While  it  is  true  that  a  need  for  systematic  regu- 
lation of  industry  and  commerce  was  a  cause  of  union  in 
1789  under  the  Constitution,  which  was  the  "outcome 
of  the  industrial  necessities  of  the  people  "  (Wright),  there 
was  greater  need  for  harmonizing  crude  state  tariffs,  which 
hampered  free  trade  at  home,  than  for  protection  against 
manufacturers  abroad. 

An  Aroused  National  Spirit,  which  in  recent  times  in 
Europe  has  so  often  appeared  in  self-weakening  high 
tariffs,  took  wiser  methods  among  Americans  after  1783. 
While  different  states,  in  response  to  popular  demand, 

'  Protection  Drove  America  to  Revolution.—  "  The  puqDose  to  mon- 
opolize the  trade  of  America  brought  on  the  Revolution,  by  unjust  taxes, 
and  the  crushing  out  of  local  industries."  (Roberts,  59. )  The  same  pol- 
icy, ruthlessly  followed,  brought  on  England  the  apparently  everlasting 
Irish  question.  The  two  greatest  losses,  therefore,  the  British  Empire  has 
ever  sustained,  may  be  attributed  mainly  to  protection.  In  these  earlier 
cases  its  gains  were  exacted  from  dependent  territory  ;  in  present  cases  its 
gains  are  exacted  from  a  submissive  consuming  class. 


262  TJie  Plam  Facts  as  to  the  Tariff. 

enacted  protective  tariffs,  they  followed  also  their  earlier 
methods,  then  doubtless  fully  justifiable,  of  granting  land, 
remitting  taxes  for  a  time,  offering  prizes,  and  giving  or 
lending  to  capable  men  without  capital  a  few  hundred 
dollars,  to  assist  in  starting  badly  needed  industries  that 
would  not  otherwise  have  come  soon.  In  the  people's 
"  patriotic  enthusiasm,  many  societies  arose  in  all  the 
states  for  protection  and  encouragement  of  industrial 
undertakings."  The  fact  that  "  England  sought  by 
every  means  to  prevent  the  introduction  of  mechanical 
industry,"  shows  that,  regardless  of  tariffs,  the  capacity 
of  the  Americans,  as  proved  by  colonial  manufacture 
under  English  restrictions,  was  not  to  be  smothered. 
The  general  sentiment  against  use  of  English  goods 
gave  the  unforced  encouragement  that  a  person  now 
enjoys  anywhere  locally  who  starts  a  new  industiy. 
"  All  the  great  industries,  those  that  are  now  the  great 
industries,  were  in  existence,  and  so  fully  recognized, 
not  only  by  this  country,  but  by  England,  that  they 
needed  only  the  fostering  care  of  enterprise,  and  the  per- 
sistent effort  of  proprietors  of  capital  and  of  labor,  to 
secure  rapid  development"  (Wright). 

The  Protective  Act  of  1790,  which  paved  the  way  for 
the  introduction  of  the  factory  system  from  England 
(Wright),  was  only  a  part  of  the  general  system  of  favor 
with  which  the  people  welcomed  new  industries.  It  was 
a  revenue  measure  with  the  light  incidental  protection 
that  many  tariff  reformers  now  approve — Jl^  per  cent 
on  iron  and  leather,  10  per  cent  on  paper,  125^4  per  cent 
on  chinaware,  and  i  cent  a  pound  on  nails.  But  new 
enterprises  did  not  wait  for  it.  Having  the  cotton  fields 
and  the  water  power,  with  well  established  iron  works, 
fulling  mills,  and  carding  mills,  the  Americans  lacked 


Foreign  Trade  and  Protection.  263 

only  her  new  machinery  to  be  ready  to  compete  with 
England,  which  prohibited  with  heavy  fine  and  imprison- 
ment exportation  of  machinery  and  drawings,  and  emi- 
gration of  skilled  workmen.  After  a  number  of  unsuc- 
cessful experiments  with  home  inventions  of  spinning 
machinery,  which,  however,  American  ingenuity  was  fast 
bringing  to  perfection  in  three  different  states  (Wright), 
the  proffered  inducements  attracted  from  England  in 
1789  an  experienced  young  builder  and  superintendent 
of  cotton  mills,  Samuel  Slater,  who  brought  in  his  mind 
plans  of  the  coveted  machinery,  and  completed  in  1790 
at  Pawtucket,  R,  I.,  the  first  successful  spinning  factory 
in  America. 

The  Embargo  and  tlie  War  Turned  the  People  to  Manu- 
facturing. —  But  ship  building  and  commerce  by  sea 
remained  the  chief  industry,  absorbing  capital  and 
energy,  and  yielding  great  profits,  until  the  enactment  by 
Congress  of  the  embargo  act  of  1807,  which  kept  Amer- 
ican ships  at  home  to  prevent  their  capture  by  the  British 
and  French,  who  in  their  Napoleonic  wars  had  blockaded 
the  European  ports  with  which  Americans  traded.  The 
War  of  18 1 2  with  Great  Britain  soon  followed,  which 
likewise  gave  protection  to  manufacturing  by  stopping  in- 
tercourse with  Europe.  But  of  greater  importance,  stop- 
ping their  immensely  profitable  ocean  carrjnng  drove  the 
people  into  manufacturing.  A  high  tariff  in  1807,  leav- 
ing ocean  carrying  an  open  occupation,  would  doubt- 
less have  had  little  effect,  in  starting  manufacturing,  com- 
pared with  the  embargo.  Yet  manufacturing  had  long 
been  growing,  and  permanent  success  was  assured.  It 
cannot  be  doubted  that  without  any  tariff  at  all,  and 
without  the  embargo  and  the  war,  American  industries 
would  eventually  have  reached  their  present  importance. 


264  TJic  Plain  Facts  as  to  the  Tariff. 

The  embargo  and  the  war,  and  the  higher  tariff  of  18 16 
(demanded  to  preserve  industries  the  war  had  forced  into 
existence),  hastened  in  an  unhealthy  way  a  development 
of  manufacturing  that  was  already  coming  anyhow.  It 
was  the  people's  ability  and  desire  to  engage  in  new  lines 
of  business,  with  the  growing  demand,  that  brought  the 
industries.  They  had  been  watching  and  seizing  busi- 
ness openings  before  any  systematic  tariff  was  enacted — 
before  the  Revolution,  while  British  restrictions  were  yet 
in  force. 

Enterprise  Filled  the  Minds  of  Capable  Men  continu- 
ously. Two  Scotchmen,  Ronaldson  and  Binney,  estab- 
lished the  present  Philadelphia  type  foundiy  in  1 796.  Zenas 
Crane,  the  father  of  several  generations  of  noted  paper- 
makers  in  Western  Massachusetts,  including  the  present 
Governor  of  that  state,  built  the  first  paper  mill  at  Dal- 
ton  in  1799.  Eli  Whitney  invented  in  1793  his  gin  for 
taking  the  seed  from  cotton.  Robert  Fulton  made  in 
1807  the  first  commercial  success  of  a  steamboat,  im- 
proving on  boats  that  had  previously  been  experimental 
successes  in  Scotland.  And  Francis  C.  Lowell,  visiting 
England  in  181 1  and  studying  secretly  the  machinery 
there,  perfected  a  new  loom,  and  built  at  Waltham, 
Mass.,  in  18 14,  the  first  scientific  and  complete  textile 
factory  in  the  world,  being  fitted  with  machinery  for  both 
spinning  and  weaving.  Previously  in  England  spinning 
and  weaving  had  been  done  in  separate  mills.  As 
America  therefore  brought  to  completeness  the  factory 
system  that  England  originated  (Wright),  and  as  down 
to  the  present  day  America  has  continually  surpassed  all 
other  nations  in  inventions  and  improvements,  to  say 
nothing  of  her  colonial  manufacturing  against  British  re- 
strictions, it  is  not  to  be  believed  that  her  system  of  manu- 


Foreign  Trade  a7id  Protection.  265 

factures  arose  to  any  important  extent  from  protective 
tariffs. 

Our  Industries  Not  Due  to  Tariffs  or  Wars. — "The  influ- 
ences which  secured  this  [development  of  American 
manufacturing]  must  be  considered  as  permanent,  and  as 
not  affected  materially  by  periods  of  depression,  artificial 
stimulation,  or  the  forces  of  war  in  either  direction  " 
(Wright).  The  experience  by  which  men  built  up  Ameri- 
can industries  originally,  on  their  own  resources,  against 
British  restriction  and  all  other  difficulties,  made  those 
industries,  it  is  not  to  be  doubted,  far  more  vigorous  than 
they  would  have  been  if  England  had  protected  them, 
and  had  sent  over  men  like  Slater  to  induce  people  to 
engage  in  them.  And  whatever  wisdom  in  the  long 
view  may  be  learned  by  us,  and  by  future  generations, 
from  our  experience  with  protection,  it  is  no  less  certain 
that  if  we  could  have  been  entirely  free  from  it,  our 
people  since  1789  would  have  enjoyed  a  vastly  greater 
aggregate  of  well-being. 

Protection  Did  Not  Start  Manufacturing  in  the  South, 
nor  in  the  back  country,  where  people  were  occupied 
with  other  industries,  and  did  not  want  to  manufacture, 
or  lacked  the  necessary  capital  and  skill.  Neither  did 
it  start  large  scale  manufacturing  in  New  England. 
Having  no  rich  soil,  forests,  or  mines,  the  people  there 
needed  manufacturing  industries  to  occupy  their  abound- 
ing energy  and  ingenuity,  and  they  would  have  had 
them  if  tariff  protection  had  never  been  devised.  So 
far  as  protection  started  more  factories  than  natural  con- 
ditions would  otherwise  have  warranted,  it  taxed  con- 
sumers in  higher  price  to  direct  the  energy  of  people 
who  would  not  have  failed  to  get  as  good  a  living  in  other 
lines  without  public  help.      Inland  from  the  ports,  house- 


266  The  Plain  Facts  as  to  the  Tariff. 

hold  manufacture  of  cloth,  and  local  manufacture  of  fur- 
niture and  farm  tools,  had  from  the  beginning,  until  near 
the  middle  of  the  nineteenth  century,  an  effectual  pro- 
tection in  lack  of  transportation,  and  in  lack  of  means 
or  desire  for  better  goods.  Each  settled  community  or 
district  produced  practically  everything  it  used  except  a 
few  imported  articles  of  small  bulk.  In  1785  it  cost  fiv^e 
dollars  to  have  a  barrel  of  flour  hauled  by  wagon  i  50 
miles  (Hadley).  Gradually  at  places  possessing  water 
power  or  other  advantages,  hand  manufacturing  gave 
way  to  factories  with  machinery  creditable  for  the  times. 
Development  of  the  Interior.  —  Early  in  the  nineteenth 
century  attention  was  turned  to  inland  transportation, 
strongly  demanded  for  traffic  with  the  growing  West, 
and  a  long  era  of  constructing  roads,  canals,  and  rail- 
ways was  entered  upon.  Then  followed  extensive  min- 
ing and  manufacturing  of  iron  and  other  metals,  inven- 
tion of  agricultural  machinery,  lumbering  on  a  large 
scale,  and  a  symmetrical  growth  of  all  the  industries  for 
which  there  were  natural  advantages  and  special  demand. 
The  country  was  filled  with  resources,  and  the  people 
were  equal  to  the  task  of  converting  them  into  wealth. 

Competition  is  Unavoidable. — Protection  is  talked  of  as 
if  there  were  no  competitors  except  those  in  foreign  lands. 
Only  at  first  does  a  tariff  protect  from  competition.  Any 
person  beginning  to  produce  a  commodity  already  kept 
for  sale  in  his  market  has  to  compete  with  others  that 
are  established  in  business.  His  is  an  infant  industry, 
and  from  home  competitors  he  can  have  no  tariff  pro- 
tection. Whatever  the  help  given  through  a  tariff,  every 
concern  in  every  business,  after  the  first,  must  pass  un- 
aided through  infancy  exposed  to  established  competition. 


Foreign  Trade  and  Protection.  267 

But  does  this  keep  men  from  starting  new  enterprises  ? 
Being  a  universal  condition,  nobody  thinks  of  avoiding  it. 

Natural  Protection  in  Distance. — The  capable  man  start- 
ing the  first  concern  of  its  kind  in  a  town  with  proper 
resources,  seldom  lacks  abundant  natural  protection,  in 
his  distance  from  home  competitors,  in  the  cost  of  trans- 
portation, and  especially  in  his  hold  on  local  patronage. 
Are  not  these  a  ten-fold  stronger  protection  against 
competitors  in  foreign  lands  ?  Men  starting  other  con- 
cerns of  the  same  kind  in  the  town  do  so  because  they 
believe  that  by  making  equal  or  better  goods,  or  by 
activity  in  selling,  they  can  get  the  necessaiy  patronage, 
which  may  spring  from  a  demand  growing  as  fast  as  the 
supply.  They  continue  to  have  the  same  natural  pro- 
tection as  the  first  from  competition  abroad. 

Foreign  No  Worse  Than  Home  Competition.  —  Is  there 
a  good  reason  to  suppose  that  foreign  competitors  are 
more  merciless  to  a  new  concern  than  are  competitors 
at  home,  and  that  tariff  protection  is  needed  against 
the  one  class  any  more  than  against  the  other  ?  The 
cases  mentioned  by  defenders  of  protection  in  which 
English  manufacturers  in  the  past  were  said  to  have  tried 
to  kill  new  enterprises  in  America  with  cut  prices,  as  our 
trusts  now  do,  would  probably  never  have  occurred  if  a 
protective  policy  had  not  attracted  attention  and  started 
a  contest.  Besides,  so  long  as  foreigners  shipped  in  a 
commodity  at  a  lower  price  than  the  home  producer 
could  bear,  the  public  good  might  require  that  the  home 
producer  make  something  else.  The  public  would  then 
get  the  benefit  of  what  the  foreigners  cut  off  from  their 
usual  price.  But  their  cut  prices  could  not  last  long. 
The  home  producer  with  resources  for  making  the  goods 
would  eventually  have  better  chances  to  meet  their  per- 


268  TJie  Plain  Facts  as  to  the  Tariff. 

manent  competition  than  that  of  the  home  competitors 
nearest  to  him,  and  knowing  best  how  to  suit  his  patrons. 
As  Sumner  says,  Lord  Brougham's  oft-quoted  plan  in 
1816  to  crush  out  American  industries  with  cut  prices, 
the  EngHsh  knew  would  only  take  their  profits  and  give 
us  good  values,  while  our  suitable  industries  would  start 
again  as  soon  as  English  prices  were  raised.^ 

Westward  Spread  of  Manufacturing  in  America. —  It 
was  local  demand,  with  favoring  conditions,  that  caused 
manufacturing  to  spread  westward  with  the  movement  of 
population.  The  people  had  the  ability  and  the  desire 
to  engage  in  a  diversity  of  industries.  There  was  no 
dearth  of  wants,  nor  of  the  means  for  supplying  them. 
Pittsburgh's  first  iron  works  were  established  in  1803. 
The  Cincinnati  type  foundry  was  started  early  in  the  cen- 
tury. The  C.  C.  Aultman  thresher  and  implement  factory 
at  Canton,  Ohio,  was  started  in  183 1.  Since  the  war 
the  farm  machinery  and  implement  business,  one  of  the 
leading  lines  of  manufacture,  has  been  located  chiefly  in 
the  West,  where  its  products  are  most  needed.  Iron 
works,  to  supply  the  demand  from  shipping,  lumbering, 
and  mining,  sprang  up  in  early  days  along  the  lakes. 
Smelting  works  and  local  machine  shops  accompanied 
the  mining  industry  over  the  Rocky  Mountain  region. 
In  later  years,  not  because  of  protection,  existing  long 

'  Competition  of  Foreign  Producers  With  One  Another  is  of  the  most 
effective  kind  to  prevent  the  charging  of  arbitraiy  prices  on  imports.  They 
cannot  readily  combine  for  the  whole  world.  A  combination  kept  up  the 
price  of  steel  rails  for  ten  years  in  the  European  countries  that  produced 
them  ;  but  Italy,  which  produced  no  rails,  then  obtained  her  supplies  from 
Germany  at  rates  30  per  cent  less  than  the  German  manufacturers  exacted 
from  their  home  buyers.  Being  protected  at  home  by  a  tariff,  the  German 
producers,  by  agreement,  easily  collected  a  monopolistic  price.  (Hadley, 
438.  See  note  on  this  in  Chapter  XII.)  The  fact  that  foreign  buyers  fare 
best  is  now  being  proved  with  emphasis  by  American  trusts. 


Foreign  Trade  and  Protection.  269 

before,  but  because  people  had  gotten  ready  and  demand 
had  arisen,  cotton  and  iron  manufacturing,  mining  and 
lumbering,  have  spread  over  the  South.  And  every  new 
concern  not  the  first  of  its  kind  has  had  to  stand  unpro- 
tected against  established  competition. 

New  Concerns  Fear  Less  Than  They  are  Feared. — The 
fact  is,  that  as  a  rule  the  new  concerns  fear  less  than  they 
are  feared.  Not  only  are  they  nearest  the  market  and 
best  acquainted  with  its  needs,  but  to  a  large  extent  they 
are  started  by  men  of  original  ability.  The  first  Ameri- 
can shops  or  factories  in  different  lines  were  usually 
copies  of  those  in  England.  Later  manufacturers,  brav- 
ing competition,  on  down  to  the  present  time,  have  grown 
up  on  their  own  original  improvements,  until  American 
industrial  progress  has  won  the  admiration  of  every  land. 
Practical  men  who  start  things  in  this  country  first  see 
that  these  are  needed,  and  they  are  generally  able  to  run 
them  without  contributions  from  the  people,  collected 
through  a  tariff  addition  to  selling  price.  Protective 
duties  have  been  of  little  importance  to  the  system  of  in- 
dustries west  of  the  Ohio  River ;  and  whatever  the  direc- 
tion they  have  given  to  industry  east  of  that  line,  it  has 
been  among  people  who  unaided  would  have  found  plenty 
to  do,  at  a  good  profit. 

Summarizing,  no  people  can  have  or  buy  until  they 
first  produce.  An  enterprising  people,  like  the  Amer- 
icans from  the  earliest  settlement,  increase  their  wants 
and  rise  in  civilization  as  fast  as  conditions  warrant  — 
adopting  improvements  by  others,  and  inventing  new 
ones  of  their  own,  as  fast  as  the  need  or  desire  for  them 
appears.  The  kinds  of  production  they  engage  in  from 
free  choice  are  those  that  to  them  yield  best  returns 
on    the   capital    and    labor  spent ;    and  whenever  they 


270  TJie  Plain  Facts  as  to  the  Tariff. 

exchange  goods,  with  foreigners  no  less  than  among 
themselves,  it  may  be  depended  upon  that  they  get  more 
value  than  they  give,  and  thereby  increase  their  wealth. 
So  long  as  degree  of  want  makes  value,  and  as  excess 
of  value  governs  exchange,  the  people  will  not  make 
mistakes  in  their  trading.  The  easier  it  is  for  them  to 
buy  and  sell  anywhere  in  the  world,  as  gain  may  lead 
them,  the  higher  the  aggregate  profits  of  their  exchange, 
and  the  greater  the  total  value  or  wealth  they  get  from 
their  production.  Therefore,  an  enlightened  people's 
industry  reaches  largest  results  under  free  trade. 

Enlightenment,  Not  Protection.  —  Yet  it  does  not  fol- 
low that  a  government  should  adopt  the  extreme  laissez- 
faire  or  let-alone  policy,  doing  little  more  than  to  pre- 
serve order.  This  doctrine,  still  adhered  to  by  a  few  of 
an  older  school  of  thinkers,  was  very  popular  for  a  cen- 
tury after  its  wide  introduction  by  Adam  Smith,  opinion 
passing  from  the  one  extreme  of  regulating  everything  by 
law,  to  the  other  extreme  of  leaving  everything  to  com- 
petition. A  sure  way  remains  to  promote  industry  and 
human  well-being — the  one  way  in  which  there  is  injus- 
tice toward  none,  but  benefit  for  all.  This  way  is  for  the 
government  to  give  its  people  the  necessary  enhghten- 
ment.  That  is  all  they  need  in  the  line  of  help.  Pos- 
sessing it,  their  own  self-interest  leads  with  unerring  cer- 
tainty to  wisest  choice  of  industry  and  trading.  Doing 
more  for  them  —  not  only  telling  some  what  to  do,  but 
paying  them  for  doing  it  with  a  tariff  bounty  taken  from 
others  through  price  —  reduces  the  aggregate  of  values 
obtained,  and  brings  harm  to  personal  character,  and 
injustice  between  class  and  class.  When  enlightened 
they  readily  find  which  lines  of  business  yield  largest 
returns — that    diversity  of  industry  made    most  profit- 


Foreign  Trade  and  Protection.  27 1 

able  by  nature,  not  by  the  scheming  of  man.  And 
taking  the  initiative  themselves  brings  highest  develop- 
ment of  business  capabihty.  This  is  the  ideal  of  civiliza- 
tion to  strive  after.  Toward  it  the  American  people  are 
progressing.^ 

What  Governments  are  Doing'  to  Elevate  the  People. — 
This  all-important  enlightenment  is  being  admirably  sup- 
plied by  government  in  the  United  States,  and  to  a  large 
extent  in  other  advanced  countries.  More  and  more  is 
instruction  changing  from  the  literary,  which  is  quite 
desirable  for  its  purpose,  to  the  industrial,  which  is  the 
essential  kind  for  production  of  wealth  and  for  earthly 
well-being.  In  the  foremost  states,  schools  of  mining 
and  agriculture,  supplemented  by  the  national  depart- 
ments, are  now  teaching  how  to  make  the  best  possible 
use  of  our  goodly  heritage  in  the  land.  Consuls  are 
reporting  the  progress  to  be  learned  from  other  nations, 
and  telling  of  opportunities  to  exchange  our  goods  for 
others  more  desired.  Manual  training  in  the  public 
schools,  soon  to  be  widespread,  is  early  turning  the 
youthful  mind  toward  work,  the  prime  necessity  of  its 
nature.  State  and  national  departments  are  gathering 
information  from  which  labor  and  capital  may  learn  how 
to  confine  themselves  to  production,  without  stopping 
for  war.  Schools  of  engineering  and  practical  chemistry 
are  growing  in  number  and  usefulness. 

1  Thomas  Jefferson  and  Education. — Thomas  Jefferson,  founder  of 
the  University  of  Virginia,  who  was  perhaps  the  greatest  of  all  teachers 
of  some  laissez-faire  ideas  of  liberty,  did  not  allow  his  adherence  to  them 
to  cover  his  practical  wisdom.  He  said  :  "  Giving  information  to  the  peo- 
ple is  the  most  certain  and  the  most  legitimate  engine  of  government." 
In  the  Southern  States,  where  the  traditional  view  favored  the  least  possible 
governing,  the  foremost  men  are  now  hearty  supporters  of  public  education 
for  all  classes.  About  the  same  is  true  of  England.  She  is  being  overtaken 
by  Germany,  because  of  the  latter' s  superior  system  of  scientific  and  in- 
dustrial education. 


2/2  The  Plain  Facts  as  to  the  Tariff. 

And  Justice  and  Kindly  Consideration  for  every  class, 
no  less  essential  in  business  and  law  than  in  morals  and 
religion,  are  coming  more  and  more  to  prevail.  The  one 
way  of  truth  and  righteousness  —  to  give  every  human 
creature  full  opportunity  to  use  and  enjoy  God's  gift  of 
life  —  is  at  last  being  generally  recognized.  It  will  be 
recognized  further  when  by  tariff  reform  wider  oppor- 
tunity is  allowed  for  profitable  exchange ;  and  the  many 
are  relieved  from  paying  a  tribute  that  does  not  give  the 
few  who  receive  it,  aside  from  cases  of  monopoly,  any 
more  profit  than  they  would  have  gotten  without  it. 


CHAPTER  XI. 

THE    FUTURE    OF    PROTECTION    IN    AMERICA. 

American  Experience  with  Protection  Could  Scarcely 
Have  Been  Different.  —  When  it  was  adopted  as  a  govern- 
ment policy,  free  trade  was  yet  untried.  Highest  wisdom 
is  a  product  of  ages.  The  sound  doctrines  of  free  trade 
set  forth  by  Adam  Smith,  the  father  of  PoHtical  Econ- 
omy, had  httle  effect  on  British  protective  tariffs  until 
more  than  a  half  century  had  passed.  And  then  it  was 
not  abstract  knowledge  of  the  truth  that  brought  about 
the  change  to  free  trade.  The  cause  was  simply  that  the 
manufacturing  class,  to  be  benefited  by  free  trade,  grew 
in  time  to  a  position  of  power  over  the  land-holding  class, 
deriving  benefit  from  protection. 

Protection  Kept  Up  British  Rents  by  making  high  prices 
for  farm  products.  Unlike  America,  which  has  a  great 
surplus  of  food  and  raw  materials  to  export,  Great  Brit- 
ain, to  obtain  a  sufficiency,  was  compelled  to  import. 
The  change  to  free  trade  was  not  made,  as  many  allege, 
because  protection  had  made  British  industries  strong  to 
compete  with  the  world.  No  other  nation  had  previously 
manufactured  extensively  by  machinery,  while  since  then 
machinery  has  become  common  in  many  lands.  The 
protectionist  quoted  in  the  next  chapter  said  in  a  great 
speech  that  in  manufacturing  England  was  a  hundred  years 
ahead  of  France  and  Germany,  largely  because  she  had 
had  peace  at  home  while  the  latter  nations  were  harassed 
by  hostile  armies.  Tlie  present  high  protection  of  Ger- 
i8  273 


274  '^^^'^  Plain  Facts  as  to  the  Tariff. 

many  against  American  and  other  food  products  is  main- 
tained, like  that  of  England  before  1 846,  by  the  agrarian 
or  land-holding  class,  said  to  be  only  i  5  per  cent  of  the 
people.  Many  manufacturers  protest  against  it,  because 
dear  food  lowers  real  wages  and  quality  of  work.  A 
new  tariff  bill  proposed  in  Germany  in  July,  1901,  raises 
the  duty  on  cattle  1,000  per  cent,  and  on  swine  100  per 
cent.  Though  by  means  of  bargains  between  political 
parties  the  bill  may  be  enacted,  it  is  encountering  unprec- 
edented opposition,  which  may  eventually  result  some- 
what as  did  the  British  free  trade  struggle  of  1 846.  The 
socialists  have  presented  against  it  a  petition  containing 
3,500,000  signatures.  Now,  as  in  the  past,  protected 
producers  are  ready  to  make  the  common  people  pay 
double  for  necessaries  of  life.  In  Germany,  with  its  poor 
soil,  the  standard  of  living  is  already  low.  Landlords 
can  eventually  take  in  rent  practically  all  that  is  added 
by  a  tariff  to  price  of  products,  if  tenant  farmers  were 
previously  earning  as  much  as  other  men  of  their  ability.^ 

1  Adam  Smith's  Compliment  to  Farmers  and  landlords,  for  being  free 
from  monopoly  thirst,  was  based  on  fact  in  1776  ;  for  then  protection  was 
of  little  use  to  them,  there  being  no  way  to  transport  their  "rude  produce 
of  the  soil."  Light  manufactures  were  then  the  goods  of  commerce,  and 
still  give  their  producers  an  advantage  in  marketing.  More  canals  and 
ships,  and  new  railroads,  changed  conditions  long  before  1846.  Besides, 
people  everywhere  lived  on  farming  from  the  beginning,  and  expected  com- 
petition in  that  industry,  while  ability  for  finer  manufacture,  being  rare, 
was  accustomed  to  favors.  Governments  often  aided  men  to  start  new  in- 
dustries. An  exclusive  right  to  make  paper  for  ten  years  was  granted  by 
Massachusetts  in  1728,  but  had  been  denied  to  William  Bradford  by  New 
York  in  1724.  In  the  Southern  colonies  a  few  paper  mills  were  started 
with  small  loans  or  cash  gifts  from  the  legislature.  This  practice  seems  to 
have  been  allowable  where  temporary  help  was  given  to  needed  industries 
that  could  soon  do  well  alone,  and  that  would  not  have  come  otherwise. 
It  was  only  to  a  few  of  the  first  that  sucli  aid  was  given  in  America.  Con- 
necticut helped  the  Norwich  paper  mill  two  years,  but  with  a  total  bounty 
of  only  ;^77. 


The  Future  of  Protection  in  America.  275 

Repeal  of  the  Corn  Laws  of  Great  Britain  in  1846 
opened  to  her  factory  operatives  a  supply  of  cheap  food 
from  abroad  —  a  better  Hving  for  their  money  wages  — 
by  enabhng  her  manufacturers  to  bring  this  food  home 
without  paying  a  duty  on  it,  and  thus  to  sell  their  wares  to 
foreign  peoples  who  could  not  pay  money.  ^  The  growth 
of  British  industry  and  commerce,  marvelous  before  that 
time,  has  been  more  marvelous  since.  Theirs  is  an  exam- 
ple of  what  a  small  country  can  accomplish,  when  its  peo- 
ple are  content  to  do  only  those  things  they  can  do  best, 
and  are  allowed  to  bring  home  free  of  tax  the  wealth  from 
good  trades  they  can  make  abroad.  In  the  same  way  a 
large  country  can  progress  even  better,  for  with  it  diversity 
of  industry  is  assured  by  nature  in  a  variety  of  resources. 

'AH  Classes  Benefited. — The  repeal  was  beneficial  even  to  farmers, 
and  raised  value  of  land  and  rents,  because  cheaper  wheat  from  abroad 
enabled  wage  workers  to  use  more  meat  and  dairy  products,  raising  their 
prices,  and  the  price  of  stock  feed.  The  repeal  was  a  decided  benefit  to 
America  and  other  lands  that  then  sold  in  England  the  British  workman's 
extra  food.  ' '  Though  the  people  were  starved,  manufacture  was  unprofit- 
able and  foreign  trade  was  declining,  it  needed  the  catastrophe  of  the  Irish 
famine  to  effect  a  peaceful  repeal  of  laws  which  did  no  person  any  good,  and 
which  inflicted  prodigious  losses  on  producers  and  consumers."  (Rogers, 
757.)  To  some  such  struggle  for  deliverance  does  a  government  adopting 
protection  subject  posterity,  if  the  yoke  of  a  system  of  industry  resting  on 
protection  is  not  to  be  borne  forever.  British  protection  to  manufacturing 
was  gradually  abolished  between  1830  and  i860.  Duties  on  raw  materials 
were  mostly  removed  some  years  before  the  repeal  of  the  com  laws. 

Ruined  British  Agriculture. — Of  course  in  time,  after  the  full  opening 
of  the  American  West  about  18S0  with  cheap  transportation,  free  trade 
brought  the  present  depression  to  British  farming,  but  in  the  same  way  that 
free  trade  with  the  West  depressed  fanning  in  our  Eastern  States.  In  each 
case  ten  consumers  are  benefited  with  cheap  food  where  one  farmer  is 
harmed  with  low  prices.  Besides,  in  Great  Britain  the  loss  was  mainly  in 
lower  rents  to  landlords,  whose  previous  gains  rested  on  their  monopoly 
of  land  overpopulated.  In  each  case  farmers  have  a  remedy  in  change  to 
a  variety  of  small  crops,  with  which  the  Danes  and  Dutch  are  now  re- 
markably successful. 


2y6  The  Plain  Facts  as  to  the  Tar  iff. 

American  Protection  Will  Go  the  Same  Way. — Similar 
economic  changes  will  undoubtedly  in  time  overthrow 
the  protective  policy  in  America.  It  is  the  remnant  of 
ancient  class  favoritism  that  survives  in  this  country. 
On  the  Continent  of  Europe  there  are  still  large  elements 
of  absolutism  in  government,  and  of  social  distinction 
between  classes,  with  an  old  and  settled  civilization  that 
changes  slowly.  Protective  tariffs,  and  other  question- 
able forms  of  government  intervention,  may  continue 
there  for  many  years.  But  the  American  tariff  system 
is  being  outgrown  by  our  industries,  as  was  that  of  Great 
Britain.  After  America's  large  and  continued  foreign 
sales  since  1897  of  steel,  cotton,  leather,  and  other  manu- 
factures, easily  meeting  British  and  German  competition, 
a  reason  for  the  tariff  on  some  goods  will  be  difficult  to 
maintain.  Yet  that  may  not  cause  its  repeal.  Logical 
difficulties  in  defending  tariffs  have  always  been  easily 
overcome  when  men's  cash  profits  were  thereby  kept  un- 
disturbed. The  decline  of  American  protection,  when  it 
comes,  will  be  due  to  inexorable  laws  of  nature.  With 
them  there  can  be  no  quibbling.  These  laws  will  work 
about  as  follows. 

The  United  States  is  a  Commercial  Nation,  having 
known  and  enjoyed  from  the  beginning,  in  spite  of  the 
tariff,  the  gains  of  trading  home  goods  for  foreign  goods 
of  more  value.  This  foreign  trade  has  become  enormous 
in  amount,  reaching  in  1900,  and  again  in  1901,  an  ag- 
gregate of  over  two  billions  of  dollars.  It  has  become 
equally  great  in  importance,  having  long  afforded  a 
market  for  a  large  portion  of  our  farm,  lumber,  petro- 
leum, and  metal  products,  and  affording  now  a  market 
for  many  of  our  manufactures.  The  people  who  produce 
these  goods  shijopcd  abroad,  valued  in   1901   at  nearly 


The  Fit f lire  of  Protection  in  America.  2yj 

fifteen  hundred  millions  of  dollars,  would  be  out  of  work 
or  business  if  this  foreign  trade  should  give  way.  They 
must  have  this  trade  to  make  a  living  in  their  present 
occupations,  because  the  goods  shipped  are  a  surplus  not 
needed  at  home  —  not  to  be  sold  except  at  sacrifice  prices, 
and  not  all  to  be  used  then,  but  kept  to  stand  in  the  way 
of  future  production.  Whether  or  not  we  could  get 
along  without  the  "  fizz  and  feathers  "  we  import  (Flint), 
we  could  not  give  up  our  exporting  without  a  revo- 
lutionary change  in  our  occupations.  "  The  number  of 
persons  whose  whole  income  rests  on  exports,  will  be 
found  to  be  three  times  those  whose  work  would  require 
readjustment  in  case  of  a  revolutionary  change  of  the 
tariff"  (Atkinson). 

Therefore  America  Needs  Foreign  Buyers.  —  But  in 
order  to  live,  she  has  to  let  live.  Live  and  let  live  must 
be  every  man's  motto,  whether  he  chooses  it  or  not.^  A 
protectionist  will  say  that  we  need  not  concern  ourselves 
about  how  the  foreigners  get  their  money,  so  long  as 
they  continue  to  buy  of  us  so  freely.  No ;  they  will 
attend  to  that.  They  are  doing  so  now.  The  trade 
balance  of  $6i  5,000,000  in  favor  of  the  United  States  in 
the  year  ended  June  30,  1898,  and  that  of  ^665,000,000 

^Must  Let  Live. — A  protectionist  candidate  in  1898  was  applauded 
when  he  told  of  suffering  in  Europe  that  made  prosperity  in  America, 
caused  by  the  duty  of  1897  on  soda  ash  used  in  glass  making.  People 
moved  by  such  a  spirit  of  selfishness  as  those  who  applauded  would  seem 
to  be  in  danger  of  killing  the  goose  that  lays  the  golden  eggs — of  losing 
customers  by  not  allowing  them  to  live.  Nature  provided  for  their  case  in 
the  law  here  referred  to.  Gains  and  losses  are  spread  over  all  nations  that 
have  intercourse.  Europe's  recent  prosperity  she  had  to  share  with  us,  be- 
cause her  demand  for  our  goods  raised  their  price  and  our  profit.  Her  loss 
from  militarism  and  high  tariffs  we  share  likewise,  because  their  effect  to 
lessen  her  people's  ability  to  buy  lowers  prices  of  our  products,  and  thus 
we  help  to  bear  her  burdens.     No  man  liveth  unto  himself. 


27§  Ihe  Plain  Facts  as  to  the  Tariff. 

in  the  year  ended  in  1901,  are  dilated  upon  as  if  it  were 
all  paid  in  cash.  Not  many  years  of  trade  at  that  rate 
would  be  necessary  to  give  America  all  the  world's  stock 
of  gold,  estimated  now  at  ^$4, 500,000,000.  But  the  treas- 
ury statistics  show  that  the  excess  of  gold  imports  over 
gold  exports  was  only  $105,000,000  in  1898,  and  ;^I3,- 
000,000  in  1 90 1.  In  1900  there  was  a  net  export  of 
gold,  $3,700,000  ;  and  again  in  the  calendar  year  1901, 
;^2,968,ooo.  Besides,  in  addition  to  the  merchandise 
figures  above,  ;$  24,000,000  of  silver  was  exported  in 
1898,  and  $18,000,000  in  1901.  Here  was  a  difference 
in  each  year  of  over  half  a  billion  dollars  owed  to  the 
United  States  —  her  sales  abroad  exceeding  by  that  vast 
sum  her  purchases  of  foreign  goods  and  her  net  imports 
ofgold.^ 

How  Was  This  Balance  Due  America  Settled  ?  —  First, 
a  part  of  it  remained  abroad  to  pay  dividends  to  Euro- 
pean stockholders  in  American  railroads  and  other  enter- 
prises.    American  industry  was  theirs,  its  net  proceeds 

^  America's  Vast  Excess  of  Exports. — American  exports,  not  includ- 
ing silver  and  gold,  reached  $1,487,764,991  in  the  year  ended  June  30, 
1901.  Imports  were  $823,172,165.  The  years  coming  next  in  amounts 
were  as  follows  : 

1900 — Exports,  $1,394,483,082;  imports,  $849,941,184;  excess  of  ex- 
ports, $544,541,898. 

1899 — Exports,  $1,227,023,302;  imports,  $697,148,489;  excess  of  ex- 
ports, $529,874,813. 

The  only  other  cases  in  which  exports  exceeded  a  billion  were  1,231 
millions  in  1898,  1,050  in  1897,  and  1,030  in  1892.  They  were  between 
800  and  900  millions  in  1880,  1881,  1883,  and  in  each  year  of  the  nineties 
not  already  given. 

Imports  passed  800  millions  in  1891,  1892,  1S93,  1900,  and  1901. 

Other  cases  of  large  excess  of  exports  were  257  millions  in  1878,  264  in 
1879,  259  in  1881,  237  in  1894,  286  in  1897. 

The  excess  was  with  imports  from  1850  to  1873,  excepting  two  years, 
reaching  182  millions  in  1872.  There  was  an  excess  of  imports  three 
times  in  late  years — 28  millions  in  1888,  2  in  18S9,  and  18  in  1893. 


The  Future  of  Protection  in  America.  279 

belonged  to  them,  so  far  as  it  was  carried  on  with  their 
capital.  Second,  another  part  of  the  balance  remained 
abroad  to  pay  interest  on  European  capital  loaned  in 
America  on  national,  state,  city,  and  railroad  bonds,  and 
to  pay  rent  on  American  real  estate  owned  by  people 
living  abroad.  Third,  a  part  was  paid  to  foreign  vessel 
owners  who  carried  goods  to  America,  their  freight 
charges  being  added  to  the  reported  aggregate  of  im- 
ports, which  is  computed  on  the  values  of  the  goods  at 
the  ports  from  which  they  are  shipped.  A  part  was 
likewise  paid  in  freight  to  foreign  ships  by  American  ex- 
porters who  delivered  at  their  own  expense  iron  bridges 
and  other  goods  sent  to  distant  lands,  though  this  item 
may  be  overbalanced  by  freight  collected  abroad  by 
American  ships  carrying  exports.  Fourth,  a  part  of  it 
was  paid  by  American  tourists  for  the  pleasures  of  foreign 
sight-seeing,  which  are  in  effect  a  part  of  our  imports. 
Fifth,  foreigners  working  in  America  send  money  back 
home  to  a  large  aggregate.  An  Italian  banker  of  New 
York  testified  before  an  immigration  commission  that  at 
least  ^20,000,000  a  year  is  sent  back  to  Italy.  The  little 
hoards  of  money  brought  over  by  immigrants,  and  men- 
tioned as  a  benefit  from  their  coming,  amount  to  a  small 
portion  of  the  money  sent  back.  In  the  year  ending  in 
1 90 1,  the  total  money  brought  by  immigrants  landing  at 
New  York,  about  four-fifths  of  all  who  come,  was  ;^ 5,490,- 
080,  an  average  of  ^14. 12  a  head. 

Our  Annual  Payments  Abroad.  —  A  statistical  authority^ 
has  estimated  these  items  as  follows  for  the  year  ended 
June  30,  1901  :  Freights,  about  ^50,000,000;  dividends 
and  interest,  1^75,000,000  to  ;$  100,000,000  ;  expenses  of 

'  Mr.  O.  P.  Austin,  Chief  of  the  Bureau  of  Statistics,  in  a  reply  of  May, 
1 901,  to  a  letter  of  inquiry  from  a  native  of  India. 


28o  Tlie  Plain  Facts  as  to  the  Tariff. 

tourists,  ;^7 5, 000,000  to  ^100,000,000  (over  expenses  in 
America  of  European  tourists).  Also  he  adds  ^100,- 
000,000  for  investments  by  Americans  in  British,  Ger- 
man, and  Russian  bonds.  A  considerable  sum  might 
perhaps  be  added  for  American  capital  invested  during 
the  year  in  foreign  shipping,  and  in  productive  enter- 
prises in  Canada,  Mexico,  Venezuela,  and  Europe.  He 
adds  for  debts  due  from  abroad  permitted  to  stand  over 
unsettled,  ;$/ 5, 000,000  to  ^100,000,000  for  each  of  the 
years  1900  and  1901.  As  the  total  of  these  items,  at 
the  highest  estimates,  is  only  $450,000,000,  while  the 
excess  of  exports  was  ;^665,ooo,ooo,  the  statistician 
thinks  that,  with  other  invisible  items,  the  remaining 
;^2 1  5,000,000  was  chiefly  settled  with  American  stocks 
and  bonds  sent  here  by  European  holders  to  be  sold  at 
the  high  prices  of  the  last  two  years.  This  item  of 
stocks  sold  seems  reasonable  at  $250,000,000  {Dun's 
Review)  for  1901,  but  no  such  estimate  could  be  made 
for  1898.  At  the  beginning  of  that  fiscal  year,  July  i, 
1897,  foreigners  held  few  American  stocks  to  be  sold, 
having  been  frightened  into  selling  by  the  silver  panic 
of  the  previous  years ;  and  in  the  rising  prices  of  1 898 
they  would  have  been  less  likely  to  sell  than  to  buy. 
The  freight  and  divddend  items  may  be  larger  than  the 
sums  given,  especially  the  freight,  which  some  place  at 
$80,000,000.^    To  be  added  also  are  the  net  income  from 

'Freights  and  Investments. — In  Senator  Hanna's  recent  speech  in 
favor  of  the  ship  subsidy  bill,  he  was  reported  as  putting  our  total  payments 
to  foreign  ships,  for  carrying  both  freight  and  passengers,  at  ^150,000,000. 
As  he  seemed  to  count  it  all  dead  loss,  he  would  naturally  put  the  amount 
high  ;  though  on  the  same  principle  the  loss  of  foreigners,  in  all  their 
buying  of  us  in  1901,  was  ten  times  as  great.  The  Nation,  in  a  late  issue, 
says  balances  due  America  from  abroad  were  not  left  unsettled  in  1901  to 
more  than  the  usual  extent.  They  may  kave  been  absorbed  by  America's 
foreign  investments,  which  a  writer  in  the  Contempora7y  Review  for  March, 


TJie  FuUire  of  Protection  in  America.  281 

American  business  of  large  British  and  German  fire  in- 
surance companies,  and  the  marine  insurance  on  imports, 
chiefly  with  British  companies.  Besides,  the  American 
government's  purchase  of  warships  abroad,  shipment  of 
army  suppHes,  and  payment  of  $20,000,000  to  Spain  for 
the  PhiHppines,  must  have  added  materially  to  our  need 
for  a  trade  balance  during  the  last  four  years.  A  part 
of  the  trade  balance  goes  to  pay  American  debt  abroad 
when  bonds  are  sent  home  to  be  sold.  It  has  been 
noticed  that  railroad  interest  and  dividends  sent  abroad 
have  been  decreasing  in  the  aggregate,  indicating  that 
our  stocks  and  bonds  are  falling  into  the  hands  of  our 
own  people.  To  a  large  extent  stocks  and  bonds,  sell- 
ing readily  for  cash  by  telegraph,  are  now  used  for  pay- 
ing balances  instead  of  gold,  the  bonds  themselves  being 
delivered  later  by  mail  or  express. 

Outflow  of  Values  is  Equalled  by  Inflow.  —  In  these 
ways  foreigners  are  enabled  to  pay  America  for  the  goods 
she  sells  to  them  in  excess  of  the  goods  they  sell  to  her. 
When  added  to  the  visible  items,  various  payments  back 
and  forth  that  cannot  be  seen  nor  estimated,  make  a 
country's  total  inflow  of  values,  in  a  series  of  years,  equal 
to  its  total  outflow.     It  gets  in  return  as  much  as  it  gives.' 

1902,  estimates  as  now  being  ^450,000,000  annually.  The  first  large  pur- 
chases by  Americans  of  European  bonds  came  in  1900.  Many  such  pur- 
chases, it  is  said,  are  now  being  made  by  them  in  London. 

'How  is  it  That  So  Little  Money  is  Shipped  when  total  transactions 
are  so  large  ?  Payment  is  made  by  means  of  foreign  exchange.  Shipment 
of  coin  would  be  too  slow  and  expensive  to  admit  of  this  immense  trade. 
Drafts  drawn  in  America  on  foreign  purchasers  of  American  goods  are  all 
bought  and  gathered  together  by  New  York  bankers.  By  sale  of  his  draft 
the  American  exporter  may  collect  his  bill  before  the  sailing  of  the  ship 
carrying  the  goods,  all  insured,  and  perhaps  not  delivered  to  the  consignee 
abroad  until  he  pays  the  draft  drawn  on  him.  The  New  York  banker  buy- 
ing the  draft  owns  the  foreign  money  it  calls  for.  He  makes  a  business  of 
dealing  in  foreign  exchange — drafts  calling  for  money  due  in  other  countries. 


2^2  The  Plain  Facts  as  to  the  Tariff. 

By  means  of  drafts  on  England  thus  bought,  and  mailed  to  his  London 
branch  for  collection,  he  accumulates  money  there  ;  and  drafts  on  that 
branch  drawn  by  himself  he  sells  in  New  York  to  persons  desiring  to  make 
payments  in  England.  His  London  branch  likewise  buys  drafts  drawn 
there  to  collect  for  goods  shipped  to  America ;  and  sells  drafts  on  New 
York  as  he  sells  them  on  London. 

International  Banking  Houses. — If  his  is  a  large  banking  house, 
like  J.  P.  Morgan  &  Co.,  and  Brown  Bros.  &  Co.,  of  New  York,  he  may 
have  a  branch  in  Paris  also — his  own,  or  closely  allied.  If  not,  he  can 
sell  in  London,  to  such  houses  as  that  of  the  Rothschilds,  drafts  drawn  on 
any  goods  importer  in  Europe,  in  whose  financial  centers  they  have  branches 
of  their  own.  Besides,  great  Continental  banks,  such  as  the  Credit  Lyonnais 
of  Paris,  have  branches  in  London,  to  which  drafts  on  the  particular  country 
can  be  sold.  Each  of  the  two  New  York  banking  houses  mentioned  has 
arrangements  as  a  correspondent  with  a  bank  in  every  important  city  of  the 
world,  that  holders  of  its  drafts,  or  letters  of  credit,  may  cash  them  con- 
veniently in  any  country.  Drafts  on  all  parts  of  the  world  outside  of 
Europe  are  dealt  in  by  London  banks  that  have  branches  in  remote  places, 
such  as  Melbourne,  Manila,  Shanghai,  Yokohama,  Calcutta,  Cape  Town, 
Buenos  Ayres.  A  banker's  draft  is  drawn  on  another  bank  in  a  foreign 
financial  center.  An  exporter's  draft  is  drawn  on  the  foreign  buyer  in  any 
place.  A  draft  calls  for  the  money  of  the  country  on  which  it  is  drawn — 
dollars,  pounds,  francs,  marks,  roubles.  It  is  the  country  buying  goods, 
therefore,  whose  money  is  used  in  the  purchase  contract.  Depreciating 
silver,  causing  low  price  for  the  exporter's  draft,  raises  price  of  his  goods. 

London  Exchange  Used  Everywhere. — Payments  between  different 
parts  of  the  world  are  principally  made  in  exchange  on  London,  which  has 
long  been  the  world's  financial  center,  and  where  banks  of  every  commer- 
cial country  or  colony  have  branches  or  deposits.  Even  by  the  Continental 
nations,  whose  payments  to  one  another  are  made  by  drafts  on  their  own 
leading  cities,  exchange  on  London  is  largely  used.  Much  of  it  comes  to 
German  banks  in  payment  for  German  goods  sold  distant  countries,  which 
sell  chiefly  to  England,  and  have  balances  there  ;  and  also  in  drafts  drawn 
by  German  exporters  against  sales  to  London.  A  person  in  New  York  de- 
siring to  pay  I, OCX)  francs  in  Paris  may  find,  by  means  of  telegraphic  quo- 
tations of  exchange,  that  with  a  draft  on  London  he  can  buy  there  the 
francs  already  in  Paris  cheaper  than  he  can  buy  in  New  York  a  draft  for 
them  drawn  on  Paris  directly. 

Gold  is  Shipped,  say  from  New  York  to  London,  when  the  balances 
in  London  belonging  to  New  York  exchange  bankers  have  fallen  so  low 
that  they  charge  above  ^4.89  in  New  York  for  a  pound  sterling  already  in 
London — worth  there  but  ^4.862/^  as  gold  bullion.  To  pay  a  debt  it  then 
becomes  cheaper  for  a  remitter  to  bear  the  costs  of  shipping  gold  coin  or 


The  Future  of  Protcctio7i  in  America.  283 

England's  Great  Excess  of  Imports.  —  Returning  to  the 
main  subject,  the  case  with  Great  Britain  is  the  reverse 
of  that  of  America.  Great  Britain's  imports  ($2,548,- 
000,000  in  the  calendar  year  1900)  exceed  her  exports 
($1,418,000,000)  by  a  balance  much  larger  than  ours,  but 
on  the  other  side  of  the  account.  She  apparently  has  to 
pay  for  excess  of  purchases  nearly  double  what  we  ap- 
parently collect  for  excess  of  sales.  Settlement  by  Great 
])ritain  is  provided  for  by  the  industries  she  carries  on 
abroad.  Her  many  people  cannot  find  business  for  all 
their  capital  in  her  little  home  territory.  Her  excess  of 
goods  bought,  over  goods  sold,  represents  the  earnings 
of  her  merchant  ships  carrying  for  foreigners,  of  her  in- 
surance business  abroad,  and  of  her  capital  invested  or 

bullion — about  2j4  cents  for  freight  and  insurance  on  each  pound  sterling. 
In  order  to  get  money  at  his  London  branch  to  draw  upon,  the  broker  in 
New  York  will  now  pay  about  ^$4.89  for  drafts  drawn  on  England  by 
shippers  of  American  goods.  Rather  than  pay  above  54-89,  the  broker 
will  ship  gold  himself.  When  conditions  are  the  opposite,  and  the  broker 
has  little  money  in  New  York  but  much  in  London,  he  sells  London  drafts 
in  New  York  as  low  as  about  $4.83,  to  get  money  to  pay  the  many  drafts 
drawn  on  him  in  New  York  by  his  London  branch.  He  will  not  sell  below 
I4.83,  for  it  would  then  be  better  to  have  his  London  branch  ship  gold. 
London  exchange  sells  high  or  low  in  New  York  as  the  total  of  claims 
(sent  from  many  lands)  payable  in  London  to  Americans  is  small  or  large 
to  demand.  Sometimes  a  banker  ships  gold  to  get  higher  interest  on 
short  time  loans.  By  raising  its  interest  rate,  the  Bank  of  England  is 
usually  able  to  stop  shipments  of  gold  from  London.  Being  the  chief 
lender,  its  raising  of  its  own  rate  tends  to  make  interest  firmer  for  all  the 
London  lenders.  Besides,  the  fact  that  by  shipment  of  gold  there  is  about 
to  be  a  diminution  of  loanable  funds,  tends  to  strengthen  interest  as  if 
reduction  of  supply  had  already  come. 

No  Annual  Settlements  in  Foreign  Trade. — There  is  no  time  in  the 
year  at  which  foreign  business  is  all  settled  up,  and  payments  made  back 
and  forth,  as  in  the  daily  settlement  between  two  local  banks.  The  treas- 
ury statistics  mean  that  during  the  twelve  months  ending  with  the  June  30th 
stated,  imports  and  exports  have  amounted  to  the  respective  sums  given. 
On  that  date  foreign  business  may  not  be  more  nearly  settled  by  payments 
than  on  other  dates — no  more  than  business  between  New  York  and  Chicago. 


284  Tlic  Plain  Facts  as  to  the  Tariff. 

loaned  in  America,  Argentina,  South  Africa,  and  else- 
where ;  also  the  profit  on  goods  she  exports,  on  enter- 
prises her  people  conduct  abroad,  and  a  considerable  sum 
in  the  profits  of  exchange  to  London  banks,  on  the  many 
drafts  they  buy,  sell  or  pay.  With  Great  Britain,  as  with 
the  United  States,  commerce  during  the  last  several  years 
has  been  exceptionally  large.  Her  excess  of  imports  aver- 
ages nearer  a  half  billion  than  the  enormous  sum  indicated 
above. 

The  British  Are  Not  Frightened  by  Their  So-Called 
Unfavorable  Balance  of  trade,  as  those  Americans  would 
be  who  turn  from  rejoicing  over  our  balance  the  other 
way,  in  mental  view  of  heaps  of  clear  gain  in  gold,  to 
feelings  of  sympathy  for  their  apparently  extravagant 
cousins  across  the  water.  To  a  mind  filled  with  the  pro- 
tective idea,  the  British  seem  to  be  running  recklessly 
into  debt.  But  they,  having  learned  from  centuries  of 
world-wide  trade  that  no  large  balance  from  abroad  can 
ever  be  expected  in  money,  see  in  their  stupendous  excess 
of  imports  the  year's  net  return  from  all  their  business 
with  foreign  lands.  Imports  are  to  them  the  same  as  the 
crop  brought  home  by  a  farmer  who  tills  other  men's 
land  on  the  shares.  He  cannot  bring  too  much.  The 
larger  this  excess  of  imports  the  better,  so  long  as  it  is 
not  necessary  to  export  gold  toward  paying  for  it.^ 

'Increase  of  British  Wealth. — From  1854  to  1901,  against  exports  of 
^58,650,000,000,  British  imports  reached  $75,220,000,000,  with  net  gold 
imports  besides  of  ^780,000,000.  (Harold  Cox,  N.  A.  Re^'ie'w,  July, 
1901.)  Their  wealth  has  enormously  increased,  as  shown  by  their  outflow 
of  capital  into  many  foreign  lands.  Their  capital  in  Argentina  has  been 
estimated  at  ;5ii, 250,000,000,  in  their  colonies  at  $2,000,000,000,  outside 
of  Great  Britain  at  $10,000,000,000.  They  are  still  the  richest  of  all 
people  per  head,  the  Danish  coming  second,  and  up  to  i88o  were  equal 
to  the  Americans  in  aggregate  wealth,  the  total  for  each  nation  being  then 
estimated  at  $44,000,000,000.      Statistician   Mulhall   in   1S99  estimated 


TJic  Future  of  Protection  in  America.  285 

Steady  Excess  of  Imports  Shows  Best  Condition.  — 
Hence,  where  there  is  httle  or  n©  inward  shipment  of  gold, 
a  large  balance  of  exports  is  more  questionable  than  a 
balance  the  other  way.  The  balance  apparently  due 
America  shows  that  to  a  large  extent  her  home  industry 
or  its  profits  belong  to  investors  living  abroad.  The 
large  "  favorable "  balance  of  Egypt  has  consisted  of 
goods  sent  out  to  pay  the  interest  on  her  burdensome 
debt.  Her  case  has  been  similar  to  that  of  some  Irish 
farmers  in  the  days  of  excessive  rent,  who  made  a  busi- 
ness of  dairying  and  yet  were  not  able  to  use  butter  on 
their  own  tables.  Large  amounts  coming  in  would  ordi- 
narily be  preferable  to  large  amounts  going  out,  as  any 
merchant  knows  where  the  credit  system  prevails,  and  as 
is  suggested  in  the  saying  that  possession  is  nine  points 
of  the  law. 

national  wealth  as  follows  :  United  States  82  billions,  Great  Britain  59, 
France  48,  Germany  40,  and  Russia  32.  {Harper  s  Weekly,  Jan.  18, 
1902.)  Our  annual  review  of  commerce,  mentioned  further  on,  gives  our 
total  wealth  in  1900  as  estimated  at  ^^94, 300,000,000.  The  United  States 
has  thirty  times  the  home  territory  of  Great  Britain  and  nearly  double  her 
population. 

Trade  Balance  Further  Explained. — In  the  case  of  orders  sent  in 
from  abroad,  profit  on  goods  shipped  does  not  belong  to  the  British,  but  to 
the  foreign  purchaser.  It  belongs  to  the  British  when  they  themselves 
send  out  the  goods  and  sell  them  through  their  own  agencies.  Probably 
Great  Britain's  free  admission  of  foreign  goods  tends  to  increase  the  trade 
balance  against  her,  for  the  reason  that  her  importers  are  not  induced  to 
undervalue  goods  in  order  to  cut  down  their  payment  of  duties.  Possibly 
the  trade  balance  in  favor  of  America  is  likewise  increased,  by  the  fact 
that  so  large  a  proportion  of  our  exports  are  admitted  free  of  duty  by  Great 
Britain  and  her  colonies.  Moreover,  her  imports,  being  entered  at  their 
value  on  arrival,  include  freight  and  other  expenses,  while  ours  do  not, 
being  entered  at  their  value  in  the  shipping  port  of  the  producing  country. 
Freight  and  profits  make  the  value  of  our  imports  considerably  larger  than 
the  sum  given.  The  value  assigned  to  British  imports,  writes  Mr.  Austin, 
American  statistician,  probably  does  not  include  profits,  which  could  not 
well  be  ascertained  until  the  goods  had  been  sold. 


286  TJic  Plain  Facts  as  to  the  Tariff. 

A  Trade  Balance  Does  Not  Show  Gains  and  Losses.  — 
Neither  one  way  nor  the  other  is  a  balance  of  trade  an 
indication  of  gain  or  loss,  or  of  prosperity  or  depression. 
Referring  to  the  table,  page  287,  it  will  be  seen  that  the 
older  nations  that  are  prosperous,  with  accumulated 
capital  and  established  foreign  business,  have  usually  a 
large  excess  of  imports.  Especially  is  this  true  of  the 
enterprising  commercial  nations  —  Great  Britain,  Ger- 
many, Holland,  Belgium,  Denmark,  and  Switzerland. 
It  is  less  the  case  with  France.  Her  people,  though 
fairly  prosperous  as  individuals  (not  as  a  nation),  are 
occupied  chiefly  at  home.  Sweden  and  Norway  have  a 
large  income  from  their  shipping.  Italy  and  Spain  are 
not  prosperous,  but  have  perhaps  enough  earnings 
abroad  from  shipping  and  trade  to  bear  an  excess  of 
imports.  Foreign  capital  also  is  often  sent  into  Spain  to 
be  invested  in  mines.  Inflow  of  foreign  capital  may 
chiefly  account  for  excess  of  imports  with  Canada  and 
the  other  British  Colonies,  and  partly  also  with  Turkey, 
in  view  of  railroad  building  in  Asia  Minor,  though  Tur- 
key is  noted  for  borrowing  and  running  into  debt.  Japan 
has  the  second  greatest  steamship  company  in  the  world, 
but  her  large  excess  of  imports  in  1900  was  increased 
by  extravagant  buying,  explained  in  the  preceding  chap- 
ter. China's  excess  of  imports  doubtless  arose  from 
inflow  of  capital  to  develop  the  country,  and  from  out- 
side support  of  missionaries  and  consuls. 

India's  and  Argentina's  Excess  of  Exports,  and  the 
excess  of  Brazil,  Mexico,  Chile,  and  Australasia,  go 
largely  in  each  case  perhaps  to  pay  dividends  on  capital 
invested  by  foreigners.  Austria-Hungary's  excess  of 
exports  probably  goes  to  pay  ocean  freights  (she  has 
little  shipping)  and  interest  on  debt  owed  abroad.     The 


The  Future  of  Protection  in  America. 


287 


Russians  trade  among  themselves.  Except  food  and 
raw  materials,  they  produce  little  that  others  want,  and 
are  not  yet  sufficiently  enlightened  or  wealthy  to  desire 
fine  goods  from  abroad/  Their  product  gives  the  mass 
of  the  people  a  bare  support  of  necessaries  ;    and  their 

1  The  Foreign  Trade  of  the  Important  Countries  is  summarized  below. 
These  figures,  which  are  those  of  the  calendar  year  1900,  except  where 
otherwise  stated,  are  taken  from  that  treasury  of  facts,  the  Annual  Review 
of  Foreign  Commerce,  prepared  under  the  direction  of  O.  P.  Austin,  Chief 
of  the  United  States  Bureau  of  Statistics.  This  bureau's  annual  Statistical 
Abstract  gives  a  variety  of  figures  as  to  our  own  country.  Great  Britain 
has  an  annual  publication  of  the  same  name.  The  Macmillan  Company's 
Statesman'' s  Year  Book  gives  statistics  for  every  country  and  colony  in  the 
world. 


Imports. 

Exports. 

Excess  of 
Imports. 

Excess  of 
Exports. 

Great  Britain. 

$2,548,262,000 

$1,418,348,000 

$1,129,914,000 

United  States.  1 

849,941,000 

1,394,483,000 

$544,541,000 

Germany. 

1,304,976,000 

1,101,275,000 

303,701,000 

France. 

813,919,000 

752,526,000 

61,393,000 

Holland,  1899. 

766,374,000 

630,041,000 

136,333,000 

Belgium,  1899. 

436,218,000 

376,157,000 

60,061,000 

Austria-Hungary 

326,600,000 

377,902,000 

51,302,000 

Russia,  1899. 

317,991,000 

377,327,000 

59,336,000 

Britishlndia,i899 

297,411,000 

379,343,000 

81,932,000 

Italy,  1899. 

290,773,000 

276,260,000 

14,513,000 

Switzerland,  1899 

224,380,000 

153,630,000 

70,750,000 

China,  1899. 

211,065,000 

150,950,000 

60,115,000 

Canada.  * 

180,804,000 

170,642,000 

10,162,000 

Spain,  1899. 

180,751,000 

1.39,901,000 

40,849,000 

Brazil,  1898. 

136,181,000 

168,665,000 

32,484,000 

Sweden,  1899. 

122,006,000 

92,435,000 

29,571,000 

Argentina. 

112,760,000 

178,444,000 

65,684,000 

Japan,  1899. 

109,760,000 

105,734,000 

4,025,000 

Turkey,  1899. 

93,984,000 

67,883,000 

26,101,000 

Denmark,  1899. 

98,436,000 

63,918,000 

34,518,000 

Norway,  1899. 

83,209,000 

42,715,000 

40,494,000 

Egypt,  1899. 

56,552,000 

75,884,000 

19,332,000 

Mexico.^ 

61,305,000 

76,346,000 

15,041,000 

Chile,  1898. 

38,784,000 

59,533,000 

20,748,000 

British  Austra- 

lasia. ^ 

351,755,000 

432,958,000 

81,203,000 

British  Colonies, 

1899.* 

321,446,000 

259,725,000 

61,721,000 

*  For  the  year  ending  June  30,  1900. 

*  Includes  specie  and  bullion. 

3  Includes  commerce  between  the  Australasian  colonies, 

*  Except  Australasia,  Canada  and  British  India. 


2S8  The  Plain  Facts  as  to  the  Tariff. 

tariff,  said  to  be  the  highest  in  Europe,  checks  exchange 
of  their  natural  products  for  other  things  more  desired. 
With  any  country,  change  of  balance  either  way  may  be 
temporary,  due  to  good  or  bad  crops,  loans,  or  wars. 
Much  of  Holland's  trade  is  in  transit  to  Germany. 

America  Formerly  Had  an  Excess  of  Imports. — Our 
large  excess  of  exports  during  the  last  few  years,  so  far 
as  not  accounted  for  in  the  above  paragraph  relating  to 
our  foreign  payments,  and  by  various  small  invisible 
items,  doubtless  remains  abroad  in  the  balances  of  inter- 
national bankers.  By  reason  of  wars  and  railroad  build- 
ing, interest  has  lately  been  higher  in  Europe  than  in 
America  by  about  one  per  cent.  Capital  is  now  so 
abundant  in  America  that  bonds  of  second  or  third  class 
cities  sell  at  a  premium  so  high  as  to  lower  the  interest 
to  barely  three  per  cent.  Previous  to  1873  the  United 
States  had  regularly  an  excess  of  imports.  It  was  due 
chiefly  to  the  following  causes  :  From  1789  until  1830,  to 
the  foreign  carrying  of  our  ships  ;  from  1830  until  1850, 
to  the  shipping,  and  also  to  inflow  of  foreign  capital  in 
loans  and  investments,  that  being  a  period  of  railroad 
building;  from  1850  until  i860,  to  shipping,  inflow  of 
capital,  and  to  net  exports  of  California  gold  and  silver ; 
from  i860  until  1873,  to  foreign  loans  for  the  war,  inflow 
of  capital  for  industry,  and  export  of  ^677,000,000  in 
gold  and  silver — nine-tenths  of  the  output.  Since  1873, 
excepting  four  years,  the  United  States  has  had  an  excess 
of  exports.  The  change  was  caused  mainly  by  decline 
of  American  shipping,  by  diminution  of  the  inflow  of 
capital,  by  extensive  travel  of  Americans  abroad,  by  de- 
cline in  output  of  gold,  and  by  payment  of  interest  and 
dividends  on  capital  previously  sent  in  from  abroad.^ 

1  Bullock,  N.  A.  Review,  July,  1901. 


The  FiiUire  of  Protection  in  America.  289 

Our  Investments  Abroad  Will  Bring  an  Excess  of  Im- 
ports Again. — The  doubling  since  1897  of  the  balance  of 
exports  indicates,  aside  from  Spanish  war  outlays  and 
payment  of  our  bonds  held  abroad,  that  this  country  at 
last  has  sufficient  capital  for  her  own  needs,  and  is  now 
making  a  net  balance  of  loans  and  investments  in  other 
lands.  The  aggregate  of  our  export  balances  in  the  last 
four  years  is  about  ^2,400,000,000,  nearly  as  much  as  in 
the  previous  twenty  years.  Up  to  the  last  several  years 
our  energy  and  capital  were  absorbed  in  developing  our 
vast  internal  empire.  Our  network  of  railroads  is  now 
about  completed,  and  attention  is  again  being  directed 
outward,  as  it  was  in  foreign  commerce  before  the  in- 
terior region  was  opened.  If  investing  abroad  continues 
a  few  years,  with  the  rapid  increase  of  our  shipbuilding 
and  gold  mining  (gold  output  now  ;^8o,ooo,ooo  a  year), 
the  United  States  may  approach  toward  conditions  sim- 
ilar to  those  of  Great  Britain  and  Germany.  Our  ocean 
freights,  gold  shipments,  and  dividends  earned  abroad, 
will  then  necessitate  a  decline  in  our  balance  of  exports. 
As  our  outside  sources  of  income  increase,  and  as  our 
bonds  held  abroad  are  paid,  reducing  our  annual  interest 
outlay,  our  commerce  may  be  marked  by  a  permanent 
excess  of  imports.  We  may  then  enjoy  the  benefits  of 
accumulated  wealth  widely  invested.  Great  Britain  and 
Germany  long  ago  passed  this  way  from  an  export  bal- 
ance, in  capital  going  out  to  be  invested,  to  an  import 
balance,  of  dividends  coming  in  to  be  enjoyed.^ 

^  That  We  Are  Not  Yet  Becoming  a  Creditor  Nation  so  fast  as  some 
think,  to  receive  interest  from  capital  loaned  and  invested  abroad,  seems  to 
be  shown  by  a  recent  article  written  by  W.  N.  Allen  for  the  New  York 
Times,  summarized  in  The  Outlook,  Dec.  21,  190I.  He  says  a  record  of 
sales  of  American  stocks  and  bonds  shows  that  since  1898,  during  every 
quarter  except  one,  foreigners  have  bought  a  larger  total  than  they  sold ; 

^9 


290  The  Plain  Facts  as  to  the  Tariff. 

Inflow  of  Capital  is  Chiefly  in  Goods.  —  Previous  to 
1873  it  came  to  America  in  steel  rails,  machinery,  and 
textile  fabrics.  It  now  goes  to  South  Africa  in  mine  and 
railway  equipment,  and  in  consumable  supplies  the  miners 
have  no  time  to  produce.  It  cannot  come  in  money  and 
stay  unless  there  is  a  money  scarcity.  The  California 
gold  shipped  abroad  could  not  have  been  kept  without 
lowering  the  value  of  each  dollar,  driving  away  foreign 
buyers  with  rising  prices,  and  causing  extravagant  spec- 
ulation and  luxurious  consumption.  These  things  were 
caused  before  the  panics  of  1837  and  1873  by  inflated 
paper  currency,  and  this,  with  too  much  gold,  caused  the 
speculation  leading  to  the  panic  of  1857.  The  California 
gold  sent  abroad  bought  needed  supplies,  at  low  foreign 
prices,  while  if  it  could  have  been  kept,  much  of  its  value 
would  have  disappeared  in  the  lowering  of  its  purchasing 
power  through  rising  prices.  Falling  prices,  attracting 
foreign  buyers,  started  the  balance  of  exports  in  1874. 
In  the  heavy  foreign  buying  since  1897  American  prices 
have  been  high,  but  foreign  prices  have  been  high  also, 
and  many  American  goods  have  been  sold  abroad  cheaper 
than  at  home. 

It  is  to  Speculative  Buyers  that  Gold  Movement  is 
Important.  —  Inflow,  tending  to  make  loans  easy  and  to 
raise  prices  on  the  stock  exchange,  is  to  them  a  good  sign. 
Outflow  is  a  warning  to  prepare  for  falling  prices  and 
restriction  of  loans.  But  outflow  is  a  serious  matter  to 
all  in  a  country  having  an  unsound  monetary  system. 

and  he  thinks  unrecorded  sales  may  be  divided  likewise.  Ten  years  ago  a 
French  statistician,  M.  Martin,  estimated  American  securities  held  abroad 
at  ^2,loo,ooo,ocx).  If  this  total  is  now  much  larger,  the  high  dividends 
of  the  present  may  require  a  yearly  payment  upon  it  of  considerably  more 
than  ^100,000,000,  besides  the  rents  to  be  paid  on  American  real  estate 
owned  abroad,  which  includes  many  buildings  in  the  cities. 


The  Fiittire  of  Protection  in  America.  291 

The  heavy  outflow  of  gold  from  the  United  States  in 
1893  ($87,000,000),  leading  on  to  the  panic,  was  largely 
a  withdrawal  of  loaned  or  invested  funds  by  foreigners, 
to  avoid  loss  by  an  expected  drop  to  the  silver  standard. 
The  same  trouble  caused  an  outflow  of  ;$78,ooo,ooo  in 
1896.  Next  year,  after  the  election,  1^44,000,000  came 
back.  Inflow  of  gold  may  be  started  by  foreign  purchase 
of  stocks  and  property  at  prices  below  real  value,  though 
then  its  coming  tends  to  raise  prices.  A  large  outward 
flow  may  be  desirable,  and  in  a  country  producing  no 
gold,  if  it  is  sent  out  to  be  safely  loaned  or  invested.  It 
will  not  move  outward,  if  the  monetary  system  is  sound, 
unless  gold  is  scarcer  abroad  than  at  home,  in  proportion 
to  the  buying  to  be  done  with  it.  Under  ordinary  con- 
ditions a  movement  either  way  does  not  give  rise  to  ap- 
prehension, being  soon  checked  by  its  effect  on  the  inter- 
est rate  for  short  time  loans  in  the  money  market,  before 
general  prices  are  influenced.  With  a  movement  large 
or  long  continued,  indicating,  if  outward,  disorder  in 
money  or  in  trade,  the  effect  upon  stock  speculation 
would  extend  to  other  business,  and  lower  general  prices 
by  checking  the  people's  buying. 

Outflow  of  Gold  as  Indicating  Decline  of  Trade. — 
From  now  on  in  America  continued  outflow  of  gold 
would  indicate  that  the  flood  of  prosperity  was  subsiding 
—  that  foreigners  had  ceased  to  want  enough  of  our 
exports  to  balance  their  various  claims  on  us.  Their 
buying  is  already  falling  off,  showing  a  decline  of  nearly 
$50,000,000  in  exports  of  manufactures  for  the  calendar 
year  1901 — due  largely  in  this  case  to  falling  prices 
rather  than  to  decreasing  quantities.  In  the  same  period 
our  imports  increased  by  fifty  millions,  reaching  the  highest 
point,  while  total  exports  decreased  by  twelve  millions. 


292  The  Plain  Facts  as  to  the  Tariff. 

During  recent  months  there  have  been  many  shipments 
of  gold  from  America.  Decline  of  German  demand  for 
American  copper  is  given  as  the  chief  reason  for  its  fall 
in  price  from  1 7  cents  last  summer  to  1 1  cents  in  January. 
Depression  has  been  severe  in  Germany  since  the  early 
part  of  1 90 1,  over  80,000  men  being  idle  in  Berlin  in 
November.  British  trade  each  month  has  been  decreas- 
ing materially,  exports  falling  off  i^  10,700,000  during 
1 90 1,  chiefly  in  coal ;  and  the  decrease  of  i^8 36,000  in 
imports  consisted  mainly  of  materials  for  manufacture, 
while  there  was  an  increase  of  i^i  1,000,000  in  imports 
of  food. 

Will  Present  Prosperity  Continue  ? — The  speculation 
in  forming  trusts,  and  the  high  prices  for  stocks  and 
products,  which  have  now  continued  over  three  years, 
can  scarcely  change  otherwise  than  downward  ;  though 
American  demand  for  most  products,  especially  manufac- 
tures, has  been  unprecedented  since  the  delay  of  steel 
production  by  the  strike  last  summer.  The  year  190 1 
surpassed  all  previous  years  in  output  in  many  lines,  by 
a  large  increase  of  railroad  earnings,  by  high  average  of 
all  prices  and  of  all  wages,  by  stock  exchange  activity, 
and  by  high  average  value  of  shares  ;  while  prevention 
of  excessive  rise  in  prices  made  the  year  surpass  all 
others  in  the  important  matter  of  complete  sale  of  out- 
puts to  consumers.  General  conditions  of  business, 
therefore,  were  perhaps  never  better  than  at  the  opening 
of  January,  1902.  Though  some  are  disposed  to  make 
light  of  references  to  a  decrease  of  our  present  business 
activity,  it  may  be  taken  as  certain  that  railroads  will 
get  enough  locomotives  and  bridges  to  answer  for  a 
while,  and  that  even  without  crop  failures  there  will  be 
an  ebbing  of  the  tide.     It  is  to  be  hoped  the  necessary 


The  Future  of  Protection  in  America.  293 

decline  from  the  present  high  level  will  be  gradual,  with- 
out many  failures.  Output  is  now  so  generally  gauged 
to  previous  orders  that  apparently  there  will  be  little  over- 
production of  goods,  though  after  a  time  trust  stocks 
must  decline  with  earnings,  and  new  factory  capacity  may 
not  long  be  kept  from  idleness.  American  shipbuilding 
during  the  latter  half  of  1901  was  15  per  cent  less  than 
that  of  the  same  period  in  1900  ;  February  started  with 
railroad  earnings  a  little  below  those  of  the  year  before, 
and  with  a  car  famine  giving  way  on  some  roads  to  light 
freights  ;  while  since  December  prices  have  been  falling. 
In  general  business,  as  in  personal  experience,  life  will 
continue  to  have  its  ups  and  downs.  By  rational  fore- 
sight and  self-control,  losses  from  change  may  be  kept 
small,  and  depression  stripped  of  most  of  its  terrors.^ 

^The  Alleged  Danger  of  Overspending  for  Imports. — Roberts  (page 
213)  while  mentioning  the  invisible  items  in  foreign  trade,  dwells  in  a  warn- 
ing tone  on  the  danger  of  extravagance  and  debt,  of  spending  capital  for 
living  expenses,  implying  that  Britain  is  probably  thus  wasting  her  sub- 
stance, and  commends  repeatedly  the  policy  of  those  who  keep  down  pur- 
chases and  lay  up  money.  With  this  advice  we  must  heartily  agree,  but 
what  has  it  to  do  with  buying  and  selling  abroad  ?  Our  unsophisticated  peo- 
ple are  not  drawn  into  useless  buying  by  the  wily  foreigner  through  entic- 
ing advertisements.  He  deals  with  such  men  as  Wanamaker  and  Field,  a 
shrewd  importing  class  in  the  larger  cities,  whom  writers  are  not  prepared 
to  counsel.  If  one  of  them  becomes  unable  to  pay,  it  is  the  foreigner  that 
loses  ;  this  country  is  so  many  goods  ahead.  Protectionists,  considering  only 
the  seller,  usually  regard  goods  as  an  evil,  not  as  a  benefit,  but  in  this  case 
the  goods  would  be  only  regular  stock.  Moreover,  collections  are  kept  up, 
by  means  of  drafts  passed  at  once  to  bankers.  Debt  is  well  taken  care  of, 
existing  in  bonds  and  in  maturing  drafts  held  by  capable  men.  Taking 
away  the  actual  gold  called  for  by  drafts,  if  they  are  not  balanced  by  drafts 
drawn  the  other  way,  soon  informs  the  people  when  they  have  overbought 
abroad,  and  the  effect  to  lower  prices  and  make  money  scarce  brings  a 
prompt  remedy.  A  tariff  making  the  people  buy  at  home  reduces  their  sav- 
ings with  higher  prices.  It  is  to  offer  goods  for  less  money  that  wholesalers 
buy  abroad.  The  total  money  amount  of  the  people's  buying  is  thus  kept  to 
the  minimum  by  foreign  trade,  or  for  a  given  amount  they  get  more  goods. 


294  The  Plain  Facts  as  to  the  Tariff. 

Reform  of  the  American  Tariff  System  Will  be  Caused, 
as  indicated  near  the  beginning  of  this  chapter,  by  the 
inability  of  foreign  peoples  to  buy  our  products,  no  mat- 
ter how  much  cheaper  and  better  these  may  be  than 
others  offered,  unless  we  take  their  products  in  exchange, 
or  allow  them  markets  somewhere  on  which  they  can 
draw  drafts  to  pay  us.^  The  necessary  decline  of  our 
export  balance,  explained  before,  must  come  through 
increasing  imports  ;  for  it  can  come  no  other  way  except 
by  decreasing  exports,  and  that  means  loss  of  the  foreign 
sales  on  which  so  many  of  our  producers  live.  In  the 
last  few  years,  to  a  large  extent,  it  has  been  Great  Brit- 
ain's doing  the  world's  buying  that  has  enabled  America 
to  do  the  world's  selling,  as  indicated  in  their  opposite 
balances  of  trade.  Great  Britain  bought  of  us  in  1898, 
;^432, 000,000  of  goods  more  than  we  bought  of  her,  and 
;^393,000,ooo  more  in  1899,  leaving  in  the  latter  year  a 
balance  of  only  ;^  136,000,000  in  our  favor  from  all  the 
rest  of  the  world.  Every  dollar's  worth  of  goods  sent 
out  from  any  country  as  exports,  must  be  taken  in,  if 
not  lost  or  consumed  at  sea,  by  some  other  country  as 
imports.  So  far  as  both  are  accurately  computed  on  the 
value  where  produced,  the  totals  of  the  world's  exports 
and  imports  are  just  the  same.  The  account  must  be 
kept  by  double  entiy.  Where  one  country  sells  more 
than  it  buys,  some  other  country  (or  countries)  must 
balance  that  excess  by  buying  more  than  it  sells. 

America  Taking  the  World's  Markets. — But  during  the 

1  Triangular  Trade. — England  and  Germany  have  been  enabled  to  pay 
us  in  part  by  means  of  a  triangular  trade.  South  America  buys  chiefly 
from  them,  and  sells  us  much  more  than  we  sell  to  her.  Thus  hides  and 
coffee  shipped  to  us  from  South  America  are  applied  on  the  debt  due  us 
from  Europe.  Many  European  ships  go  first  to  South  America,  then  to 
New  York,  and  then  back  home,  carrying  three  different  cargoes. 


TJic  Future  of  Protection  in  America.  295 

last  four  years,  especially  in  iron  and  steel  manufactures, 
America  has  been  taking  the  markets  of  the  world  away 
from  Great  Britain  by  offering  cheaper  and  better  goods, 
and  is  now  beginning  to  take  her  export  trade  in  coal, 
on  which  the  British  have  lately  levied  an  export  duty 
(something  unusual)  of  a  shilling  a  ton,  chiefly  to  raise 
money  for  the  Boer  war,  but  partly  to  check  depletion 
of  their  mines.  At  the  same  time  both  America  and 
Germany  are  making  inroads  on  British  foreign  trade  in 
cutleiy  and  textile  fabrics.  Our  consul  at  Peking  writes 
(May,  1 901)  that  American  cottons  are  fast  supplanting 
the  English  there,  and  that  goods  from  America  now 
compose  thirty  per  cent  of  all  imports  into  the  three 
northern  provinces.  Now  if  this  change  is  to  continue, 
how  is  Great  Britain  to  keep  on  buying  the  bulk  of  our 
grain,  cotton,  dairy,  meat,  and  fruit  exports  unless  we 
take  her  goods  in  return  ?  Producing  no  gold,  she  can- 
not get  money  or  exchange  to  pay  for  them  if  her 
markets  are  taken  from  her — if  she  cannot  sell  to  a  third 
country,  like  Brazil,  which  in  turn  pays  us  with  goods 
we  buy  in  excess  of  what  we  sell.  Her  people  will 
scarcely  pay  out  for  current  living  expenses  their  capital 
in  savings  laid  by — draw  on  bank  reserves  of  gold  while 
they  last,  melt  down  plate,  pawn  their  watches,  and  sell 
their  shares  in  our  railroads. 

Could  We  Take  England's  Shipping  Trade  ?  —  If  there 
are  Americans  who  in  a  desire  for  the  whole  of  the 
earth's  good  are  worried  over  British  supremacy  in  ocean 
shipping,  and  they  could  induce  Congress  to  offer  such 
cash  bounties  as  would  transfer  that  supremacy  to 
America,'  Great  Britain  would  probably  have  to  give  up 

1  Can  America  Do  It  All  ? — The  following  quotation  was  published  in 
May,  1 901,  as  the  words  of  J.  Pierpont  Morgan,  said  to  have  been  spoken 


296  TJie  Plain  Facts  as  to  the  Tariff. 

buying  the  bulk  of  her  food  and  materials  from  this 
country.  Without  freights  paid  to  her  by  America, 
Great  Britain  might  then  get  supplies  from  Argentina, 
Egypt,  India,  Australia,  or  any  other  countries  that 
would  take  her  manufactured  goods  in  exchange.  If 
these  were  not  so  good  as  American  manufactures,  she 
would  have  to  give  more  of  them  —  lower  her  prices. 
Opposition   from    the    predominating    farming   class    of 

in  Europe  to  a  New  York  Journal  correspondent :  "  The  United  States 
can  solve  every  commercial  problem  if  we  give  it  time.  The  country  can 
supply  all  the  markets  of  the  world.  We  need  carrying  power.  The 
country  has  not  anything  like  enough  carrying  power  for  its  products.  A 
commercial  coalition  against  the  United  States  by  European  countries  is 
not  possible.  There  are  too  many  conflicting  interests.  We  can  do  with- 
out luxuries  ;  they  cannot  do  without  necessities.  We  have  entered  upon 
an  era  of  unprecedented  prosperity." 

Our  Dazzling  Future. — It  will  take  a  good  while  to  solve  the  problem 
of  selling  without  taking  something  in  return.  Dazzling  accounts  of 
American  exports  are  written,  sometimes  by  officials,  in  which  there  is  no 
mention  of  imports  in  exchange.  Illustrated  papers  give  soul-stirring  pic- 
tures of  the  future,  showing  waters  covered  with  American  ships  carrying 
American  products.  Their  aim  seems  to  be  to  show  that  the  gain  and 
glory  are  all  ours — to  hide  or  leave  unnoticed  the  fact  that  our  exports,  and 
the  accompanying  gains,  must  be  balanced  by  the  exports  and  the  gains  of 
the  nations  receiving  them.  With  the  Nicaragua  canal  we  may  get  our 
goods  to  China  at  least  expense,  and  may  gain  most  from  trade  there  ; 
but  the  nation  taking  to  China  the  worst  goods,  at  the  most  expense  of 
shipment,  will  still  sell  those  goods  there  if  it  is  determined  to  have  tea, 
and  cannot  do  better  by  trading  elsewhere.  Its  exporters  will  take  in  tea 
the  best  price  they  can  get,  though  it  gives  a  poor  return  to  the  producers 
of  the  goods,  in  the  same  way  that  a  farmer  sells  a  small  crop  of  bad  qual- 
ity, hauled  a  long  distance  over  rocky  roads. 

Capitalists  Know  Better. — But  the  above  quotation  can  scarcely  be  a 
fair  expression  of  Mr.  Morgan's  views.  Shrewd  men  like  him  never  build 
a  new  railroad  without  considering  the  people  to  be  served — the  freight  they 
have  to  haul,  and  the  money  their  industry  brings.  Besides,  the  above 
mention  of  necessities,  and  of  all  the  markets,  sounds  as  grasping  as 
thoughts  an  avowed  enemy  of  trusts  might  attribute  to  them.  The  idea 
often  implied,  that  we  may  take  England's  industries  until  she  has  none 
left,  has  been  mentioned  as  suggesting  a  spirit  decidedly  amiable. 


The  Future  of  ProtectioJt  in  America.  297 

America  would  then  quickly  sweep  away  our  protective 
system.  Apart  from  Great  Britain,  most  of  the  world 
except  France  and  Germany  has  food  to  sell,  and  the 
agricultural  policy  of  these  two  countries  is  strongly 
protective,  even  to  the  point  of  paying  millions  in  boun- 
ties to  beet  sugar  producers  whose  product  costs  them 
more  than  they  can  get  for  it.  France  and  Germany 
will  not  buy  American  food  if  they  can  well  avoid  it. 

Unsoundness  of  American  Dislike  of  England.  —  A  good 
illustration  of  the  usual  unsoundness  of  people's  prejudices 
is  afforded  by  the  trade  of  recent  years  between  America 
and  England.  The  chief  reason  why  our  protective  sys- 
tem in  its  extreme  form  has  been  allowed  to  exist  by  the 
farming  class  is  that  in  England  there  is  one  place  in  the 
world  where  large  quantities  of  farm  products  are  wanted, 
and  are  admitted  free  of  duty.  Yet  our  tariffs  have  always 
been  especially  directed  against  England,  whose  buying 
gives  our  farmers  living  prices  on  products  partly  ex- 
ported ;  and  protectionist  speakers  have  been  in  the  habit 
(notably  so  in  1884)  of  stirring  up  the  old  Revolutionary 
dislike  of  England,  chiefly  of  course  to  please  the  Irish, 
who,  however,  seldom  vote  for  protection,  and  who  are 
not  led  by  their  just  but  old  grievances  against  English 
tyranny  to  settle  in  lands  not  governed  by  English  law. 
Some  of  these  grievances  arose  from  tariffs  designed  to 
enrich  the  English  by  robbing  the  Irish. 

England's  Buying  Makes  Our  Great  Export  Trade. — 
Politicians  who  recount  with  satisfaction  the  growth  of 
American  and  decline  of  British  exports,  and  who  have 
tried  to  win  public  favor  with  promises  of  a  vigorous 
foreign  policy  directed  chiefly  against  England,  seem 
never  to  consider  the  fact  that  free  or  lightly  taxed  buy- 
ing by  her  and  her  colonies  makes  possible  our  large 


298  TJie  Plaifi  Facts  as  to  the  Tariff. 

excess  of  exports,  which  is  balanced  in  the  world's  trade 
by  her  excess  of  imports/  No  important  country  but 
England  will  bear  an  excess  of  imports  that  can  possibly 
be  prevented  by  home  production. 

The  Other  European  Nations  Keep  Down  Their  Foreign 
Buying  with  tariffs  similar  to  those  of  the  past  intended 
to  prevent  sending  out  gold.  These  nations  could  not, 
if  they  desired,  bear  a  trade  balance  against  them,  year 
after  year,  unless  they  had  ships  and  investments  earning 
money  abroad.  Among  them  Germany  alone  has  these 
means  of  income  on  a  large  scale.  For  admitting  a 
needed  American  commodity  free,  or  at  low  duty,  their 
tendency  is  to  exact  from  us  a  similar  favor  in  return. 
Russia  in  1901  shut  out  some  forms  of  American  steel 
and  machinery  by  a  high  tariff,  prohibitory  and  retalia- 
tory, because  we  stopped  admitting  free  her  partly  refined 
beet  sugar.  To  a  considerable  extent  in  recent  years,  our 
protective  policy  has  doubtless  tended  to  tighten  Conti- 
nental tariff  restrictions.  The  recently  proposed  German 
tariff  strikes  directly  at  American  food  products,  and  fol- 
lows the  French  system  of  maximum  and  minimum  rates, 
designed  to  force  other  nations  to  ask  and  give  reciprocal 
concessions.  An  Austrian  tariff  proposed  later  is  said  to 
be  fully  as  severe.  Even  Great  Britain's  steady  adher- 
ence to  free  trade  might  be  modified  against  us  if  we 
continued  to  take  her  trade  in  distant  lands  and  to  shut 
her  out  of  America  by  high  tariffs.      Her  desire  for  the 

1  How  It  Has  Grown. — Our  sales  to  Great  Britain  in  the  year  to  June 
30,  1 901,  were  nearly  a  hundred  millions  more  than  ever  before,  reaching 
^631,000,000  (total  to  all  Europe  ;^  1,136, 000,000)  ;  but  our  purchases  of 
her  were  forty  millions  less  than  in  1893,  amounting  to  only  $143,000,000, 
making  our  excess  of  sales  to  her  last  year  $488,000,000.  Since  1895  our 
annual  sales  to  Great  Britain  have  increased  $244,000,000,  a  little  more 
than  our  increase  in  all  the  rest  of  Europe.  We  sold  France  last  year 
twenty  millions  less  than  in  1 892. 


Tlie  Future  of  Protection  in  America.  299 

cheapest  supply  of  food  has  probably  prevented  her  from 
favoring  her  colonies  with  a  low  duty  on  American  and 
other  foreign  grain  —  the  reason  why  she  has  not  com- 
plied with  requests  from  her  colonies  for  a  duty  against 
German  bounty-fed  sugar.  Her  objection  to  this  course 
may  be  lessened  as  Canada,  Egypt,  Australia,  and  India 
become  better  able  to  produce  food  on  a  large  scale. 
Sometimes  her  Fair  Trade  party  agitate  for  duties  against 
nations  that  levy  duties  against  her ;  and  greater  eco- 
nomic independence  for  her  has  been  thought  of  in  the  de- 
velopment of  food  and  cotton  production  in  her  colonies/ 
Soon  We  Too  Must  Buy  in  Order  to  Sell.  —  If  the  new 
beet  sugar  industry  in  America  should  become  able  to 
supply  all  our  demand,  Germany  would  probably  shut 
out,  or  cease  buying,  our  meat  and  fruit  products,  unless 

1  "The  Open  Doors  Will  Be  Closed. — In  fact,  there  are  signs  on  all 
hands  of  a  concerted  effort  to  resuscitate  British  trade.  .  .  .  Many  things 
are  pointing  to  a  campaign  in  favor  of  English-made  products  as  sweeping 
and  as  successful  as  that  now  affecting  union  and  non-union-made  prod- 
ucts."     (Letter  from  an  American  in  London,  WorhV s  lVo7-k,  Jan.  1902. 

Will  England  Return  to  Protection  ? — The  British  government's  pro- 
posal (April,  1902)  to  levy  a  tariff  duty  of  three  pence  per  hundred  weight 
on  imports  of  grain,  and  five  pence  on  flour,  is  due  to  a  necessity  for  new 
taxes  to  meet  an  estimated  expense  for  this  year  of  $850,000,000.  Ordi- 
nary sources  of  revenue  have  been  nearly  exhausted,  the  duty  on  tea  being 
now  75  per  cent  and  the  duties  on  tobacco  and  liquors  being  so  high  that  total 
revenue  from  them  is  falling  off.  The  grain  and  flour  duties  may  be  levied 
as  unavoidable,  but  the  Liberals  are  earnestly  opposing  such  a  tax  on  the 
food  of  the  poor.  Perhaps  one  of  the  worst  effects  of  the  Boer  war  is  the 
present  danger  that  Great  Britain,  to  increase  her  military  strength,  maybe 
drawn  into  protection,  through  an  effort  to  bind  her  colonies  to  her  more 
closely  in  an  imperial  federation,  by  means  of  free  trade  in  their  products 
while  levying  duties  on  those  of  other  lands.  That  is  an  effective  way  of 
buying  a  strong  union  with  colonies,  as  will  be  explained  later  in  connec- 
tion with  Hawaii.  British  duties  now  fall  on  all  imports  alike,  whether 
colonial  or  foreign;  but  Canada  in  late  years  has  favored  the  mother  country' s 
products  with  preferential  or  lowered  duties.  The  demand  of  some  of  the 
colonies  for  preferential  treatment  Mr.  Chamberlain  is  disposed  to  grant. 


300  The  Plain  Facts  as  to  the  Tariff. 

her  sugar  were  taken  in  exchange  or  something  else  in 
its  stead.  It  would  be  the  same  with  Brazil  if  all  our 
coffee  should  be  produced  in  our  new  tropical  posses- 
sions ;  and  the  same  with  China  and  Japan  if  the  new 
industry  lately  started  in  South  Carolina  should  supply 
all  our  tea.  ^  It  is  a  doubtful  kind  of  patriotism  that  is 
so  anxious  to  produce  everything  at  home.  A  country 
that  did  all  its  own  producing  would  soon  have  to  do  all 
its  own  consuming,  which  it  must  do  anyhow,  but  with 
foreign  exchange  it  has  choice  of  quantities  and  varieties. 
Ships  will  never  come  home  to  America  loaded  with 
money.  It  would  not  do  for  too  many  people  to  be 
much  influenced  in  their  buying  by  the  suggestion  of  the 
words  "  Made  in  America."  Theirs  would  be  that  form 
of  withholding  that  tendeth  to  scatter.  There  is  no  need 
for  coalition  of  mutually  suspicious  European  nations 
against  us  in  tariffs,  nor  in  war  as  some  predict,  nor  even 

'YetWe  Cannot  Have  Too  Many  Industries. — It  is  well  to  grow 
sugar  and  tea,  and  all  else,  if  we  can  do  so  at  a  profit ;  and  for  the  govern- 
ment, by  gathering  information,  and  by  experiments,  even  to  the  extent  of 
large  cost,  to  encourage  new  lines  of  industry.  Possibly  bounties  for  a 
short  time,  to  start  a  badly  needed  industry,  might  be  wise  with  a  govern- 
ment above  the  reach  of  undue  influence  from  persons  directly  benefited. 
To  some  extent  this  may  have  been  the  case  with  the  Germans  and  their 
sugar  bounties,  which  for  a  time  increased  the  world's  supply  of  sugar,  and 
lowered  its  price,  but  which  later  have  become  an  intolerable  burden  not 
easily  to  be  removed.  Harm  comes  when  consumers  are  forced  by  a  tariff 
to  buy  a  home  product  not  naturally  worth  its  cost,  when  they  would  other- 
wise, by  buying  a  foreign  product,  save  money  for  themselves  and  enable 
foreigners  to  buy  of  us  other  products  well  worth  their  cost.  When  left 
free  to  choose,  people's  self-interest  will  tell  them  when  to  produce  at  home, 
and  when  to  buy  abroad.  Then  they  will  buy  abroad  neither  too  much  nor 
too  little.  We  want  all  the  industries  nature  has  provided  resources  for; 
but  when  public  help  is  required  to  the  extent  of  cash  contributions,  the 
chances  are  that  the  industry  will  cause  a  net  loss  to  the  people.  Nature's 
industries  scarcely  need  such  assistance  among  people  able  to  take  care  of 
themselves. 


TJie  Future  of  Protection  in  America.  301 

in  separate  retaliatory  action.  Ceasing  to  buy,  because 
gold  is  flowing  out,  and  hard  times  setting  in,  will  be 
more  effective. 

But  the  Intention  Here  is  Not  to  Defend  the  English. 
They  have  admitted  our  products  free  because  they 
have  gained  by  it  (the  proper  reason),  not  to  help  Amer- 
ica. And  until  1846  they  followed  the  protective  system 
with  the  same  selfish  spirit  pointed  out  above.  By  reason 
of  their  gain  from  buying  American  goods,  they  have 
seemed  not  to  notice  the  unfriendliness  of  some  classes 
in  America — to  have  no  disposition  to  be  unfriendly  in 
return,  by  transferring  their  custom  to  Argentina  and 
other  food  producing  countries.  As  their  wars  with  us, 
in  1776  and  18 12,  are  very  briefly  mentioned  in  their 
histories  (doubtless  in  part  because  unsuccessful  and  un- 
popular), they  do  not  think  of  us  as  enemies  but  rather 
as  kindred.  The  French  are  their  hereditary  enemies. 
The  unreasonableness  of  their  old  hatred  of  France,  in 
whose  prosperity  as  a  customer  they  might  have  rejoiced, 
was  pointed  out  by  Hume  a  century  and  a  half  ago.  ^ 
France  is  so  near  that  free  trade  with  her  would  then 
have  yielded  quick  returns,  like  internal  trade  at  home, 
and  might  have  been  greatly  preferable  to  slow  and  risky 
commerce  with  distant  colonies. 

Freer  Trade  Will  Draw  the  World  Together.  —  Free 
trade,  however,  or  rather  lower  and  more  friendly  tariffs, 
will  eventually  draw  the  world  together,  as  the  people  of 
a  town  are  drawn  together  by  the  desire  of  each  for  the 
prosperity  of  others,  for  the  sake  of  trade  and  mutual 
helpfulness.  Friendliness  over  the  wider  circle  rests  upon 
reasons  similar  to  those  of  friendliness  over  the  narrower 
circle.      Self-interest,    when    properly    enlightened,    ap- 

•  Quoted  at  length  by  Ely,  in  Problems  of  To-Day. 


302  TJic  Plain  Facts  as  to  the  Tariff. 

preaches  unselfishness.  The  hope  of  Richard  Cobden, 
that  free  trade  would  bring  peace  and  friendliness  among 
all  nations,  has  not  been  blasted  —  only  deferred.  Un- 
limited patience  is  necessary  in  human  progress.^ 

Free  Trade  Movement  Stopped  by  Wars. — After  Eng- 
land's change  in  1846,  there  was  a  decided  movement 
toward  free  trade.  "  The  United  States  seemed  com- 
mitted to  low  duties  by  the  undoubted  success  of  the 
tariff  of  1847,  ^^^  of  '^^^  Canadian  reciprocity  treaty  of 
1854."^  France  then  adopted  freer  trade  by  means  of 
reciprocity  treaties.  But  wars  soon  came,  in  America, 
France,  and  Germany,  and  stopped  the  promising  growth 
toward  free  trade.  In  America  higher  duties,  necessi- 
tated by  temporary  need  for  war  revenue,  were  allowed 
to  continue ;  and  in  Europe  antagonism  between  nations 
was  reflected  in  tariffs.  Small  countries  followed  the 
example  of  the  larger,  until  before  1890  protection  had 
spread  to  colonies  all  over  the  world.  Down  to  the 
present  time,  as  indicated  by  the  recent  German  and 
Russian  tariffs  against  America,  commercial  hostility  has 
tended  to  increase.  Yet  this  does  not  prove  it  to  be  a 
good  policy.  "  It  is  perhaps  safe  to  regard  the  policy  of 
these    years   as  a  set-back   in    the  general  current   of 

J  Foresaw  That  Men  Would  Cling  to  Protective  Favors. — Adam 
Smith  in  1776  did  not  expect  much  of  short-sighted  self-interest.  He 
wrote  :  "  To  expect  that  freedom  of  trade  should  ever  be  entirely  restored 
in  Great  Britain,  is  as  absurd  as  to  expect  that  an  Oceania  or  Utopia  should 
be  established  in  it.  .  .  .  Monopoly  has  so  increased  some  tribes  of  them 
that,  like  an  overgrown  army,  they  intimidate  the  legislature.  The  mem- 
ber who  supports  monopoly  acquires  popularity  with  men  of  wealth,  and 
reputation  for  understanding  trade.  If  he  opposes  them,  neither  probity, 
nor  rank,  nor  public  service,  can  protect  him  from  infamous  abuse,  nor 
sometimes  from  real  danger."  The  progress  of  free  trade,  therefore,  has 
been  much  greater  than  Adam  Smith  expected.  See  note  in  Chapter  XV. 
regarding  America  as  a  peacemaker. 

2  Hadley,  422. 


The  Ftiture  of  Protection  in  America.  303 

economic  events  rather  than  as  an  indication  of  the 
course  of  that  current."  ^  Nations,  Hke  individuals,  may- 
do  fooHsh  things  when  moved  by  resentment.  But  they 
only  lose  by  it ;  and  in  time  they  find  a  way  to  change 
their  practice.  That  a  change  is  coming  is  now  indicated 
by  many  movements  to  unite  all  continents  by  means  of 
great  railroads  and  ship  canals.  These  are  useful  only 
for  trade,  and  that  can  flourish  only  under  friendly  tariffs. 

Business  Interests  Would  Not  Now  Permit  a  War  Be- 
tween America  and  England,  whatever  jingoists  might  do 
to  stir  up  prejudices.  She  needs  our  cotton  and  food 
products,  and  we  need  her  as  a  customer.  Her  conquest 
or  reduction  by  Russia  would  harm  us  immeasurably,  to 
say  nothing  of  the  blow  to  civilization  in  weakening  the 
influence  of  the  nation  that  originated  modern  liberty  and 
self-government,  and  modern  industry  and  commerce. 
Enlightened  business  forces  are  less  noticeable  in  Conti- 
nental Europe,  but  they  will  grow.  Despite  the  historic 
dislike  between  the  English  and  the  French,  France  sells 
more  goods  in  Great  Britain  than  in  any  other  country, 
and  the  former  buys  much  from  the  latter. 

Free  Trade  as  a  Preventive  of  Hard  Times.  —  Free  trade 
among  all  nations,  at  least  to  the  extent  of  liberal  reci- 
procity, doubtless  to  be  realized  in  this  centuiy  from  the 
mind-broadening  influences  now  at  work,  would  not  only 
prevent,  more  perfectly  than  at  present,  wasteful  over- 
supply  of  food  in  one  country  with  famine  in  another, 
but  everywhere  it  would  make  hard  times  less  frequent 
and  less  severe.  To  get  the  full  blessings  of  free  trade, 
it  must  be  the  policy  of  both  nations  in  the  exchange  — 
better  yet,  the  policy  of  all  nations  among  whom  exchange 
might  arise ;  though  where  but  one  nation  alone  has  free 

1  Hadley,  444. 


304  The  Plain  Facts  as  to  the  Tariff. 

trade  she  can  eventually  gain  by  it.  The  whole  world 
of  consumers,  unlike  those  of  a  single  country,  would 
not  suddenly  be  influenced  by  panic  or  distrust,  and  stop 
buying  goods.  When  this  happens,  whether  for  a  good 
reason  or  a  poor  one,  factories  are  closed  and  depression 
begins,  to  continue  for  several  years  until  a  return  of  the 
feeling  that  things  are  all  right.  With  any  family  enjoy- 
ing much  more  than  bare  necessaries,  consumption  may 
be  cut  down  by  a  quarter  or  a  half  Hard  times  are  at 
first  a  condition  of  men's  minds  more  truly  than  of  their 
pockets,  though  after  business  has  stopped,  and  income 
fails,  they  are  very  real,  and  must  be  endured.  Under 
universal  free  trade,  a  panic  in  one  country  might  not 
greatly  reduce  the  demand  from  the  whole  world.  By 
reason  of  foreign  demand,  prices  would  not  fall  so  low, 
and  production  and  income  might  soon  regain  their  usual 
conditions. 

As  a  Reg^ulator  of  Business.  —  On  the  other  hand,  when 
reviving  business  enlarged  demand  rapidly,  prices  of 
materials,  with  the  world  to  supply  them,  would  not  rise 
so  high  as  to  check  production  ;  nor  would  there  be  the 
usual  attempt  to  supply  at  home  all  the  demand,  by 
building  new  plants  to  lie  idle  when  flush  times  subsided. 
Excesses,  both  of  good  times  and  hard  times,  would  be 
spread  over  the  world,  and  in  each  nation  the  harm  would 
thereby  be  reduced  to  the  minimum.  This  evening  proc- 
ess exists  now,  but  usually  when  evils  of  over-supply 
and  under-supply  rise  high  enough  to  overflow  tariff 
barriers.  With  wheat  it  now  works  well.  Easy  out- 
flow prevents  a  good  crop  in  America  from  lowering 
prices  ruinously,  and  saves  Europeans  from  famine  when 
their  crop  fails.  The  only  saving  feature  of  the  present 
depression  in  Germany  has  been  the  steadiness  of  her 


TJie  Future  of  Protection  in  America.  305 

export  trade,  which  remains  good,  being  carried  on  with 
nations  now  enjoying  prosperity.^ 

The  Dethronement  of  High  Protection  is  Approaching. 
The  economic  forces  that  will  dethrone  high  protec- 
tion in  America  are  already  appearing.  A  recent  change 
in  American  commerce  is  materially  modifying  the  views 
of  protectionists,  while  Great  Britain  and  her  colonies  are 
yet  buying  of  us  more  freely  than  ever.  This  change  is 
our  growing  trade  with  Cuba,  Porto  Rico,  the  Philippines, 
and  China.  Their  people  have  no  money  to  pay  out,  and 
cannot  take  our  goods  unless  we  take  theirs  in  exchange. 
Upon  sales  in  their  markets  some  of  our  cotton  mills 
live.  Leading  protectionists  are  recognizing  the  neces- 
sity of  our  buying  in  order  to  sell.  President  McKinley's 
short  speeches  on  the  Pacific  coast  in  May,  1901,  and 
especially  his  address  at  Buffalo  the  day  before  he  was 
fatally  shot  by  an  anarchist  assassin,  sounded  almost  as 
if  he  were  speaking  for  free  trade.^ 

'New  York  Tribune  letter,  Feb.  8,  1902. 

2  President  McKinley,  in  His  Buffalo  Address,  his  last  public  utter- 
ance, said  :  "The  problem  of  more  markets  requires  our  urgent,  immedi- 
ate attention.  Only  a  broad  and  enlightened  policy  will  keep  what  we 
have.  No  other  policy  will  get  more.  A  system  which  provides  a  mutual 
exchange  of  commodities  is  manifestly  essential  to  continued  and  healthful 
growth  of  our  export  trade.  We  must  not  repose  in  the  fancied  security 
that  we  can  forever  sell  everything  and  buy  little  or  nothing.  ...  If  per- 
chance some  of  our  tariffs  are  no  longer  needed  for  revenue  or  to  encourage 
and  protect  industries  at  home,  why  should  they  not  be  employed  [in 
reciprocity]  to  extend  and  promote  our  markets  abroad  ? ' ' 

One-Sided  Trade  Cannot  Continue. — Realizing  that  a  continuance  of 
our  one-sided  commerce  of  the  last  four  years  is  mathematically  impossible, 
he  declared  the  trade  statistics  were  "almost  appalling."  This  sounds 
different  from  the  general  rejoicing  over  our  favorable  trade  balance  of  two- 
thirds  of  a  billion. 

The  Reasonable  Spirit  of  These  Later  Addresses,  considered  with 
his  earlier  views  while  more  in  subjection  to  party  policy,  will  add  to  his- 
tory's estimation  of  his  high  ability  and  noBle  character.  "Mr.  McKin- 
20 


3o6  The  Plain  Facts  as  to  the  Tariff. 

The  Open  Door  in  China.  —  The  contention  of  Amer- 
ica, joining  England  and  Japan,  for  the  open  door  to 
trade  in  China,  is  also  out  of  harmony  with  protective 
ideas.  This  contention  is  against  the  taking  of  Chinese 
territory  by  Russia,  Germany,  and  France,  each  of  whose 
policy  would  be  to  shut  out  other  nations  from  its  Chi- 
nese dominions  by  means  of  a  high  tariff.  America, 
England,  and  Japan,  on  the  contrary,  are  content  to 
leave  China  free,  and  to  make  sales  there  by  offering 
best  values,  not  desiring  to  get  trade  by  forcing  people 
to  buy  of  them  or  of  nobody.  But  at  home  America, 
more  so  than  Germany,  deprives  her  people  by  the  tariff 
from  an  opportunity  to  choose  between  home  and  foreign 
goods.  They  must  take  the  home  article,  or  in  many 
cases  pay  a  high  duty  on  the  foreign. 

The  Now  Popular  Doctrine  of  Reciprocity,  by  conced- 
ing the  gain  of  exchange,  and  the  necessity  of  accepting 
goods  for  goods,  also  tends  to  disclose  the  unsoundness 
of  protection.  Reciprocity  in  trade  is  to  admit  free,  or 
at  lowered  duty,  some  goods  from  a  country  that  will 
return  the  favor  by  admitting  thus  some  goods  from  us. 
It  was  brought  into  prominent  notice  in  1890  by  James 

ley  has  outgrown  the  *  McKinleyism '  of  his  more  callow  statesmanship. 
That  is  a  most  hopeful  sign  of  further  progress  and  of  enduring  greatness 
for  the  nation."  (Chicago  Neivs.)  Of  the  same  hopefulness  now,  since 
the  former's  death,  has  been  President  Roosevelt's  hearty  accord  with  the 
desire  for  freer  trade. 

Preparedness  for  Commercial  War. — Apparently  these  ideas  of  the 
two  Presidents  were  not  shared  by  an  official  who  said  to  a  reporter  in  the 
previous  June :  "  We  will  produce  within  our  own  domain  everything  that 
goes  upon  our  table  and  upon  our  backs.  .  •  .  Whenever  we  get  ready  we 
can  come  pretty  near  starving  any  other  nation."  But  in  justice  to  the 
official  it  must  be  stated  that  he  was  talking  of  trade  combination  by  Eu- 
rope against  America.  It  is  well  to  possess  and  rejoice  in  resources  for  all 
products.  The  harm  comes  when  law  keeps  people  from  bringing  home 
extra  wealth  from  abroad. 


The  Future  of  Protection  in  America.  307 

G.  Blaine.  The  reciprocity  arrangements  negotiated 
under  the  McKinley  high  tariff  law  of  that  year,  though 
limited  closely  to  commodities  not  produced  at  home, 
had  considerably  increased  our  trade  with  tropical  Amer- 
ica when  they  were  repealed  by  the  Wilson  law  of  1894. 
Similar  reciprocity  treaties,  negotiated  under  the  Dingley 
law  of  1897,  were  not  ratified  by  the  Senate  during  its 
last  session.  They  were  defeated  by  protected  interests, 
clinging  tenaciously  to  their  tariff  advantages.  But 
during  the  last  twelve  months  reciprocity  has  been 
widely  favored  in  influential  circles.  Mr.  McKinley's 
speeches  have  been  mentioned,  and  in  the  closing  chap- 
ter other  significant  quotations  are  given.  It  is  admitted 
that  something  must  be  done  toward  freer  exchange  of 
goods  for  goods,  and  reciprocity  is  an  offer  of  protection- 
ists to  split  the  difference  between  their  doctrine  and  free 
trade. 

Foreign  Trade  Made  Necessary  by  Differences  of 
Nature.  —  Foreign  trade  rests  upon  reasons  almost  as 
strong  as  those  for  division  of  labor.  For  every  country 
or  colony  nature  has  provided  some  special  means  of 
subsistence.  With  Switzerland,  having  little  in  soil, 
mine,  or  forest,  the  special  means  are  the  remarkable  in- 
genuity and  industry  of  her  people,  as  shown  in  their 
manufacture  of  watches  and  jewelry.  Her  mountain 
scenery  is  also  a  means  of  income  from  tourists.  The 
French  have  a  rich  soil  and  an  unequalled  artistic  taste 
for  fine  work.  Great  Britain  had  great  deposits  of  coal 
and  iron,  and  her  people  are  among  the  first  in  mechan- 
ical ingenuity  and  commercial  capability.  Her  hold  on 
her  ocean  carrying  trade  is  secure  so  long  as  she  buys 
double  as  much  as  any  other  nation.  It  is  the  buyer, 
not  the  seller,  that  directs  how  goods  are  to  be  shipped. 


3o8  TJie  Plain  Facts  as  to  the  Tariff. 

The  latter  is  usually  glad  to  make  the  sale,  without 
regard  to  shipment.  Besides,  not  having  land  from 
which  to  get  a  living,  the  British  will  contrive  to  retain 
possession  of  the  sea/ 

^The  British  Patronize  Their  Own  Shipping. — A  plate  matter 
article,  sent^  no  doubt  with  the  approval  of  protection  headquarters,  to  party 
papers  in  the  campaign  of  1898,  before  the  ship  subsidy  bill  had  been  pro- 
posed, explained  that  Americans  could  not  hope  to  carry  their  own  products 
at  sea,  because  the  British  would  not  insure  American  vessels  as  they  do 
their  own,  and  were  reluctant  to  buy  the  cargo  of  an  American  vessel  at 
Liverpool.  "Whether  or  not  the  article  was  fully  true,  some  such  methods 
of  preserving  the  carrying  trade,  upon  which  many  Britons  live,  would 
undoubtedly  appear  long  before  their  ships  had  been  driven  from  the  seas, 
(See  note  on  page  299.) 

America's  Extensive  Shipping  Before  the  War. — America's  foreign 
shipping  was  at  least  equal  to  the  British  until  shortly  before  i860,  when 
the  change  from  wooden  to  iron  ships  gave  the  British  the  advantage  of 
vessels  at  lower  cost — an  advantage  previously  enjoyed  by  Americans. 
(Bullock,  68.)  This  difference  of  cost,  with  destruction  of  our  vessels  by 
Confederate  cruisers,  and  with  the  effort  to  protect  our  shipbuilders  by 
denying  American  registry  to  foreign-built  vessels,  brought  a  steady  decline 
in  our  foreign  shipping.  In  1859  American  vessels  carried  70  per  cent 
of  our  imports,  and  63  per  cent  of  our  exports.  By  1880  these  percent- 
ages had  fallen  to  1 3  and  22,  and  by  1900  to  7  and  12.  American  ship- 
ping between  home  ports  has  largely  increased,  foreign  vessels  being  shut 
out  from  it  by  our  navigation  laws.  Shipbuilding  in  this  country  has  been 
growing  rapidly  of  late,  since  our  production  of  steel  became  the  cheapest 
in  the  world. 

British  Buying  Makes  London  the  World's  Financial  Center. — The 
large  foreign  buying  of  the  British,  besides  building  up  their  shipping, 
makes  the  rate  of  exchange  throughout  the  world  favorable  toward  London, 
previously  referred  to  in  this  chapter.  It  is  on  London  that  drafts  are 
drawn  against  sales  to  the  British  from  every  land  ;  and  because  there  are 
so  many  of  these  drafts  they  are  sold  cheap — at  a  discount.  Besides  this 
effect  of  sales  to  the  British,  making  their  exchange  well  known,  their 
money  is  so  reliable,  having  been  solidly  on  the  gold  basis  for  nearly  a 
century,  that  banks  in  all  parts  of  the  world  keep  deposits  in  London,  and 
London  exchange  passes  readily  everywhere.  The  fact  that  it  is  easiest  to 
get  money  already  in  London  makes  that  city  a  good  place  in  which  to  buy. 
It  is  the  world's  financial  center  because  it  is  the  world's  commercial  cen- 
ter. (Prof.  J.  F.  Johnson,  N.  A.  Review,  .July,  1901.)  Contrary  to  a 
statement  in   the  World's    Work,  May,   1902,   continuation  of  our  half 


The  Future  of  Protection  in  America.  309 

Americans  Most  Munificently  Endowed  by  Nature. — 

The  United  States  has  a  greater  variety  of  natural  re- 
sources than  any  other  country,  more  perhaps  than  the 
much  larger  Russian  Empire  ;  and  the  American  people, 
being  the  pick  in  enterprise  from  European  populations, 
and  having  had  unequalled  experience  in  self-govern- 
ment and  in  wealth  production,  are  probably  superior  in 
industrial  capacity  to  any  other  people  the  world  has 
ever  known. 

Yet  They  Would  Lose  by  Refusing  to  Trade  "With 
Others. — But  it  does  not  follow,  as  protectionists  have 
taught,  that  America  should  produce  at  home  every 
article  she  can,  and  thus  have  as  little  as  possible  to  do 
with  other  nations.  Even  though  our  resources  of  soil, 
forest,  and  mine,  and  of  human  capacity,  enabled  us  to 
produce  every  desired  commodity  with  less  expenditure 
of  labor  and  capital  than  would  be  necessary  in  any 
other  nation,  we  should  still  gain  in  every  case  where  by 
sending  abroad  one  commodity  we  could  trade  it  there 
for  another  commodity  that  would  cost  us  more  to  pro- 
duce than  the  one  traded.  Then,  though  we  could  sur- 
pass others  on  everything,  we  might  advance  in  wealth 
most  rapidly  by  confining  our  labor  and  capital  to  those 
industries  that  yielded  largest  returns. 

That  it  is  the  Easiest  and  Cheapest  "Way  to  Get  Things, 
is  the  one  great  reason  for  foreign  trade.  There  need  be 
no  admission  by  one  country  in  the  transaction  that  it 
could  not  produce  at  home  the  things  traded  for,  better 
and  more  cheaply  than  does  the  foreigner.     By  offering 

billion  excess  of  exports  cannot  directly  make  New  York  the  world's  finan- 
cial center.  That  sum  is  owed  to  us.  Foreigners  draw  on,  and  have 
money  in,  the  cities  that  owe  them.  But  New  York  will  probably  become 
the  world's  financial  center  when  we  have  a  regular  excess  of  imports,  as 
explained  on  page  289. 


310  TJie  Plain  Facts  as  to  the  Tariff. 

to  trade  it  simply  shows  that  it  can  produce  its  own  article 
the  more  cheaply  of  the  two.  It  does  not  consider  at 
all  the  foreigner's  expense  of  producing  the  other  article. 
That  is  liis  affair.  His  producing  expense  may  be  larger, 
giving  him  less  gain  from  the  trade.  Exactly  the  same 
reasons  control  exchange  at  home.  A  lawyer  living  in 
a  suburban  residence  may  be  better  able  to  grow  his 
supply  of  potatoes  than  his  tenant  farmer — in  bodily 
strength,  capital,  and  even  in  agricultural  knowledge. 
But  why  should  he  spend  his  time  at  farm  work,  for  a 
return  of  ^1.50  a  day,  when  for  each  day  at  his  law 
practice  he  earns  ^^20  ?  For  him  the  place  to  get  pota- 
toes, and  everything  else,  is  in  his  law  office.  In  the 
same  way  England  and  Massachusetts  get  flour  and 
meat  by  making  cloth,  while  Texas  gets  cloth  by  grow- 
ing meat.  When  an  enlightened  people  can  get  things 
more  easily  by  making  them  than  by  trading  for  them, 
somebody  will  establish  the  new  occupation,  without 
being  paid  to  do  so  with  a  government  tax  on  others. 

For  Yet  Another  Reason  We  Should  Lose  by  Living  to 
Ourselves. — Not  only  must  the  few  strongest  people  let 
others  live — first  for  their  help  in  fighting  off  enemies, 
then  for  their  work,  and  lastly  for  their  trade — but  with 
the  less  favored  people  the  strongest  must  also  share. 
By  Infinite  Wisdom,  doubtless  to  check  the  selfishness 
of  men,  this  law  was  decreed  in  the  original  constitution 
of  humanity. 

The  Strong  Must  Share,  or  Suffer  Decay. — If  America 
could  surpass  other  nations  in  producing  everything  she 
used,  and  though  she  could  produce  any  one  commodity 
just  as  easily  as  any  other,  she  would  still  have  to  trade 
with  and  thus  benefit  other  nations  to  save  herself  from 
decay — if  ease  of  getting  things  did  not  bring  decay  any- 


Tlie  Future  of  Protection  in  America.  3 1 1 

how.  It  is  improbable  that  American  superiority  over 
the  rest  of  the  world  is  now  comparable  with  that  of 
China  in  ancient  times.  China  invented  coinage,  bank 
notes,  printing,  gunpowder,  paper,  and  silk  weaving,  cen- 
turies before  they  were  known  elsewhere.  But  while 
her  people,  shut  up  to  themselves,  continued  to  pore 
over  their  classics,  and  to  venerate  their  ancestors,  other 
nations  attained  a  progress  toward  which  the  Chinese 
now  seem  unable  to  make  a  start.  It  is  plain  in  her  case 
that  "  the  mills  of  the  gods  grind  slowly,  but  they  grind 
exceeding  small."  ^ 

^  Begrudging  the  Favor  of  Patronizing  Others. — As  it  is  a  self-injuring 
policy  for  a  nation  or  a  community,  as  for  a  person  or  a  family,  to  try  to 
make  everything  for  itself,  begrudging  the  benefit  to  be  conferred  by  patron- 
izing others,  so  it  is  dangerous  for  a  nation,  as  for  a  person  or  a  firm,  to  in- 
dulge in  self-admiration — to  think  of  itself  more  highly  than  it  ought  to 
think.  A  business  concern  desires  to  appear  as  a  leader  before  customers, 
but  not  usually  before  strong  competitors,  because  leadership  in  business  is 
often  short-lived,  and  is  seldom  so  secure  that  it  cannot  be  taken  or  shared 
when  sought  with  determination.  A  manufacturer  is  pleased  to  hear 
praise  of  his  wares,  but  he  listens  with  greater  eagerness  to  criticism,  that 
by  remedying  defects  he  may  render  success  more  sure.  Over-confidence 
with  the  British  in  their  long  leadership  of  industry,  was  a  reason  why  they 
were  easily  overtaken  by  the  Americans  and  Germans. 

Danger  of  Self-Admiration. — It  was  not  the  inefficiency  of  slave 
labor  that  exhausted  soil  in  the  South.  Slave  labor,  though  very  ineffi- 
cient where  not  kindly  and  judiciously  encouraged,  was  similar  to  horse 
labor,  and  might  have  been  used  by  careful  farming  to  enrich  land,  instead 
of  to  impoverish  it.  It  was  inefficiency  of  masters  that  ruined  soil,  and 
one  cause  of  that  inefficiency  was  self-admiration.  No  doubt  when  one  of 
these  old  time  gentlemen,  noble  in  many  respects,  watched  cradlers  cut- 
ting wheat  so  light  that  it  could  be  caught  in  the  hand,  instead  of  resolv- 
ing at  once  to  make  his  farming  amount  to  more,  reassured  himself  with 
such  soliloquies  as — "  Is  not  this  the  great  plantation  of  my  father.  Colonel 
So-and-so,  who  was  the  son  of  General  So-and-so?  " 

It  Caused  America's  Present  Evils. — The  evils  that  have  settled 
upon  the  United  States  since  the  war — control  of  cities  by  bad  men,  and  a 
general  practice  of  making  merchandise  of  politics — sprang  likewise  to  a 
large  extent  from  self-admiration  ;  from  a  habit  of  shutting  the  eyes  to  de- 


3 1 2  The  Plam  Facts  as  to  the  Tariff. 

fects  calling  for  remedies,  to  indulge  in  indolent  contemplation  of  our  na- 
tion's greatness.  The  kind  of  patriotism  that  keeps  a  country  at  its  best 
is  not  shown  by  fireworks  and  hilarity,  nor  by  censuring  any  one  who  dares 
to  see  aught  but  perfection  in  the  tendency  of  the  times.  It  is  more  like 
the  watchful  care  of  the  gardener  for  the  grounds  he  is  responsible  for — 
like  the  anxious  love  of  the  mother  for  the  child  whose  character  she  must 
make.  The  fact  that  each  citizen  can  do  so  little,  makes  important  the 
prevalence  of  a  serious  regard  for  public  duty. 


CHAPTER   XII. 

THE    ARGUMENTS    FOR    PROTECTION. 

Many  Easily  Refuted. —  Most  of  the  common  argu- 
ments for  protection  a  reader  can  refute  for  himself  by 
appHcation  of  the  principles  explained  in  the  last  two 
chapters.  These  arguments  seem  convincing  to  an 
audience  not  prepared  to  question,  but  give  way  quickly 
to  critical  examination.  Often  a  speaker  will  talk  at 
length  on  our  first  duties  being  toward  our  family,  city, 
state,  and  nation  —  on  the  wisdom  of  looking  out  for 
ourselves  —  as  if  somebody  were  in  danger  of  making 
trades  to  help  the  other  party.  People  will  not  fail  to  be 
selfish  enough,  without  being  urged,  especially  toward 
foreigners.^ 

'  Buying  Things  Out  of  Town. — The  complaint  against  persons  who 
send  away  from  their  home  town  to  buy  things  is  not  reasonable  if  they  are 
thereby  better  suited.  Not  many  will  take  the  trouble  and  expense  to  do 
so  without  cause.  The  fullness  of  value  a  dealer  offers  is  doubtful  when 
he  talks  much  against  those  who  do  not  willingly  buy  of  him.  They  make 
him  a  free  gift  of  a  part  they  pay  when  they  put  up  with  what  he  offers, 
in  a  case  where  the  same  price  would  get  elsewhere  what  they  would  rather 
have.  As  products  of  some  kind  are  shipped  away  from  a  town,  its  busi- 
ness is  only  natural  when  other  goods  are  shipped  in.  The  buyer  and  the 
town  gain  to  the  extent  that  the  goods  shipped  in  are  better  values  than 
those  offered  at  home.  As  explained  in  Chapter  VII.,  society  wants  only 
the  number  of  dealers  that  will  supply  its  needs  best.  To  support  more 
wastes  the  public  benefit  of  their  labor  and  capital.  A  business  that  cus- 
tomers must  lose  money  to  help  is  not  good  for  the  town.  This  business 
as  itself  a  customer,  to  be  held  and  kept  on  its  feet  with  patronage  given  it 
mainly  for  that  purpose,  other  dealers  had  better  do  without  who  them- 
selves offer  good  values.  Making  a  man's  living  for  him  in  order  to  sell 
to  him  is  usually  trying  too  hard  to  get  trade.     It  is  well  to  buy  at  home, 


314  The  Plain  Facts  as  to  the  Tariff. 

Buying^  Cheapest  and  Selling  Dearest.  —  It  is  said 
that  this  is  not  the  practice  in  every-day  life ;  that  a 
person  so  directs  his  buying  as  to  enable  and  induce  his 
sellers  to  buy  of  him/  This  is  sometimes  true.  It  is 
the  practice  under  the  crop  lien  system  of  the  South,  by 
which  farmers  are  kept  fed  and  clothed  by  the  local  mer- 
chant, in  order  that  they  may  raise  a  crop  of  cotton  and 
pay  him  with  it  when  gathered.  It  is  simply  barter, 
and  that  with  a  vengeance  ;  the  merchant  having  to  raise 
his  price  about  a  quarter  to  balance  his  risk  and  trouble, 
and  the  farmer,  seldom  seeing  a  dollar,  and  without  credit 
elsewhere,  having  to  take  what  this  one  merchant  offers. 
In  small  towns  in  any  state  many  people  know  what  it  is 
to  "pay  in  trade." 

Value  in  Cash  is  the  Only  Value.  —  Who  tolerates 
such  business  that  can  well  avoid  it,  or  how  under  it  is 
progress  possible  ?  Where  industry  is  developed,  and 
in  all  but  a  minute  fraction  of  the  nation's  business,  a 
price  always  means  cash.  Ready  money  products  are 
the  only  ones  people  handle.     That  the  money  is  forth- 

but  not  when  a  free  gift  must  be  made,  which  is  a  loss  to  the  giver,  and 
weakens  a  dealer's  effort  to  deserve  the  custom  he  asks. 

Free  Trade  Gives  the  V/orld's  Best  Values. — One  reason  why  the 
crowded  industry  of  England  has  long  continued  so  healthy  is  that  free 
trade  gives  the  people  the  best  values  offered  in  the  world,  promoting  con- 
sumption much  more  liberal  than  in  protected  Germany.  They  buy  Ger- 
man and  Austrian  sugar  for  less  than  the  cost  of  producing  it,  bounties 
balancing  the  loss  to  the  grower.  The  ^1,351  each  gained  last  year  by 
buying  locomotives  in  Pittsburgh  for  Calcutta  was  worth  more  to  the  British 
stockholders  and  their  nation  than  giving  the  order  to  the  Glasgow  bidders 
could  have  been.  Such  bargains  in  imports  can  be  secured  so  long  as 
home  industries  can  make  other  things  to  export. 

"'The  market  is  most  desirable  for  you  in  which  you  can  dispose  of 
your  commodities.  .  .  .  You  must  buy  in  the  same  market  in  which  you 
sell.  .  .  .  Vou  can  better  pay  ten  dollars  in  potatoes  or  shoes,  for  these 
you  have,  than  half  that  sum  in  gold,  which  you  do  not  possess. ' '   (  Roberts. ) 


The  Arguments  for  Protection.  3 1 5 

coming  is  sufficient  for  each  seller.  Where  the  buyer 
gets  it  is  his  concern  ;  the  seller  has  troubles  of  his  own. 
The  best  way  he  can  help  the  buyer  and  society,  aside 
from  proper  chanty,  which  is  seldom  involved,  is  to  devote 
all  his  attention  to  giving  full  value.  Where  all  pay 
money,  all  who  do  anything  Jiave  money.  It  is  then  as 
easy  to  buy  as  if  everybody  would  take  trade  without  over- 
charging against  it.  Excepting  such  retail  trade  as  that 
of  relatives  and  friends,  and  that  held  by  reason  of  debt  to 
the  buyer,  or  of  social  custom,  each  competent  business 
man,  knowing  the  markets  and  not  lacking  credit  or 
capital,  saves  every  dollar  he  can,  both  in  buying  and 
selling.  In  buying  a  large  quantity  of  materials,  or  in 
selling  a  large  order  of  finished  products,  a  difference  of 
a  fraction  of  a  cent  per  pound  will  take  the  business. 
All  this  is  as  it  ought  to  be.  Only  by  getting  and  giving 
each  possible  increment  of  value  can  society  enjoy  the 
full  benefits  of  competition.  It  is  to  keep  trade  from  fol- 
lowing the  lowest  price  that  protection  exists. 

But  Buying  Abroad  is  Said  to  be  Different,  because  our 
taking  of  fifty -eight  millions  of  coffee  and  rubber  from 
Brazil  in  1900  enabled  us  to  sell  our  products  there  to 
the  amount  of  only  twelve  millions.^  How  does  this 
differ  from  the  case  of  the  tinsmith,  repairing  the  grocer's 
furnace  in  a  year  to  the  amount  of  two  dollars,  yet  buy- 
ing of  him  family  supplies  to  the  amount  of  a  hundred 
dollars  ?  Should  the  grocer  have  his  furnace  shifted 
around  to  permit  the  tinsmith  to  work  up  an  equal  bill  ? 
Each  is  glad  to  be  able  to  buy  what  he  needs,  and  his 
effort  to  return  favors  he  does  not  carry  so  far  as  to  spend 
much  money  for  less  value  than  other  sellers  will  give. 
Our  people  did  not  reduce  their  allowance  of  coffee  by 

1  Roberts,  239. 


3l6  The  Plain  Facts  as  to  the  Taiiff. 

three-quarters  because  the  Brazilians  saved  money  by 
buying  their  manufactures  in  Europe.  Coffee  and  manu- 
factures have  certain  cash  prices  which  determine  the 
trade  in  them  in  the  markets  of  the  world,  just  the  same 
as  tinsmithing  and  groceries  have  such  cash  prices  in  the 
market  of  the  town.  The  effect  of  each  person's  follow- 
ing that  occupation  in  which  demand  seems  to  give  him 
best  reward,  is  to  provide  each  with  the  money  and  the 
goods  his  labor  or  capital  will  bring.  Whether  he  sells 
much  or  little  to  this  or  that  man  is  a  minor  matter,  so 
long  as  in  the  aggregate  he  finds  his  demand  and  his 
goods.  Tariffs  are  only  an  obstruction,  similar  to  difficulty 
of  transportation,  which  likewise  protects  the  local  pro- 
ducer by  narrowing  the  consumer's  field  of  choice. 

How  it  is  That  Importing  Enables  Us  to  Export. — Re- 
peating somewhat  from  Chapter  XI.,  it  is  the  total  of 
our  buying  abroad  that  eventually  determines  how  much 
foreigners  can  buy  of  us,  without  regard  to  whether  we 
sell  most  or  buy  most  of  this  or  that  country.  Drafts 
against  us  for  all  our  foreign  buying  are  sold  promptly  to 
New  York  and  London  bankers,  who  buy  also  our  own 
drafts  to  collect  for  our  sales  in  other  lands.  If  at  any 
time  the  difference  of  the  two  totals  is  a  large  gold  bal- 
ance to  be  shipped  us,  the  countries  losing  that  gold  feel 
a  money  scarcity,  and  check  their  buying  of  imports, 
which  action  soon  cuts  down  our  sales  abroad.  Our 
buying  then  of  more  foreign  goods,  by  causing  this  gold 
to  flow  back  where  needed,  eventually  increases  our  ex- 
ports again,  but  perhaps  not  for  some  time,  until  busi- 
ness has  revived  in  the  countries  that  had  lost  the  gold, 
or  in  other  lands.  When  the  home  producer  needs  a 
tariff  to  hold  the  home  market,  there  is  something  wrong 
with  his  prices  or  qualities.     And  by  depriving  his  cus- 


The  Arguments  for  Protection.  317 

tomers  of  the  better  values  from  abroad,  the  tariff  also 
narrows  the  market  and  lowers  the  price  of  such  of  their 
products  as  foreigners  demand.  It  is  for  his  own  gain 
that  a  person  buys  abroad,  not  to  induce  foreigners  to 
buy  of  us.  Their  own  gain  soon  leads  them  to  do  that. 
Could  We  Have  the  Rails  and  the  Money  Too? — The 
argument  that  we  ought  to  have  made  steel  rails  instead 
of  buying  them,  because  we  should  then  have  had  the 
money  and  the  rails  too,  would  then  have  applied  to 
sugar,  and  to  many  other  things  we  might  have  con- 
trived to  produce;  and  could  be  carried  further,  if  not 
to  show  that  there  should  be  a  shoemaker  and  a  tailor 
in  each  large  family,  at  least  to  show  that  each  town  or 
state  should  have  every  industry  that  could  find  a  market 
in  its  borders  and  force  out  an  existence.  But  could  we 
have  had  both  the  money  and  the  rails  ?  Not  unless 
our  capital  and  labor  that  made  the  rails  were  previously 
idle.  To  make  the  rails  they  would  have  had  to  stop 
making  other  things,  perhaps  those  traded  with  foreign- 
ers for  the  money  (exchange)  that  paid  for  the  rails. 
One  cannot  eat  his  cake  and  keep  it  too  —  use  his 
resources  to  make  other  things  and  still  have  them  free 
to  make  rails. ^ 

'  Does  Buying  at  Home  Encourage  Home  Industry  ? — Simple  arith- 
metic, Roberts  confidently  says  (p.  244),  shows  that  a  person  buying  for- 
eign goods  gives  for  them  an  equivalent  amount  of  his  own  product,  and 
thus  adds  only  the  amount  of  his  own  product  to  home  wealth  ;  whereas, 
when  he  buys  home  goods  he  adds  to  his  country's  wealth  not  only  his  own 
product,  but  also  the  product  of  the  home  people  who  made  the  goods, 
and  of  those  who  made  the  component  materials.  By  this  view  home 
buying  is  at  least  thrice  as  beneficial.  The  fact  overlooked  is  that  this 
home  buying  does  not  start  anybody  at  work.  All  had  to  be  busy  before 
to  make  a  living,  and  at  industries  not  supported  by  a  tariff  tax  on  the 
public.  Buying  abroad,  strange  as  it  seems,  encourages  home  industry 
most.     Exchange  of  a  less  for  a  greater  amount  of  goods  or  money  value 


3 1 8  The  Plain  Facts  as  to  the  Tariff. 

Without  a  Tariff  America  Would  Have  Made  Rails 

eventually,  for  the  same  reasons  that  she  built  ships  in 
colonial  times.  To  suppose  that  she  would  not  have 
done  so  implies  a  poor  opinion  of  the  industrial  genius 
that  has  made  Pittsburgh  and  its  environs,  working  upon 
the  world's  best  deposits  of  iron  and  coal,  with  the 
world's  best  labor,  and  in  the  midst  of  the  world's 
largest  openings  for  iron  and  steel  products.  The 
supremacy  of  America  in  iron  production  was  foreseen 
long  ago.  In  1866  Professor  Jevons  of  England  wrote 
that  our  fuel  and  ore,  with  the  enterprise  of  our  people, 
put  the  question  beyond  doubt.^  If  in  the  growth  of 
demand  for  rails,  men  long  continued  to  hesitate  to  make 
them,  and  were  not  already  producing  something  else 
worth  more,  a  tariff  duty  to  start  the  business  might 
have  been  for  a  while  a  well  spent  levy  on  the  people. 
But  men  who  can  make  things  strongly  demanded  near 
by,  with  the  resources  at  hand  to  compete  with  the 
world,  will  usually  find  a  way  to  do  so  at  a  profit,  with- 
out help  from  public  contributions.  If  hastening  the 
development  of  our  rail  industry  brought  prices,  as 
alleged,  lower  than  they  would  otherwise  have  fallen, 
our  rail  producers  might  have  gained  by  starting  one  at 

gives  a  person  greater  means  for  patronizing  his  neighbors.  It  is  people 
who  have  things  whose  general  buying  is  large,  not  those  who  need  because 
they  have  not,  as  protection  so  often  assumes.  Repeal  of  the  grain  tariff 
in  1846  so  cheapened  wheat  bread  that  the  British  laborer's  spending  for 
other  things  increased  farm  prosperity,  raising  price  of  barley  and  oats,  and 
doubling  in  time  the  prices  of  meat  and  butter.  If  need  made  buyers,  the 
place  for  a  large  retail  store  would  be  in  the  slums,  where  homes  are  bare, 
not  uptown  among  the  rich,  having  already  goods  without  limit.  The  more 
goods  a  person  has,  the  higher  his  grade  of  living,  and  the  more  he  spends. 
As  to  paying  freight  both  ways  (Roberts,  245),  a  money  cost  for  every- 
thing enables  the  importer  to  know  exactly  what  he  gains. 
1  Bullock,  75. 


The  Arguments  for  Protection.  319 

a  time,  without  throwing  down  the  gauntlet  in  protec- 
tion. Benefit  has  been  withheld  from  consumers,  be- 
cause rails  have  continually  been  cheaper  abroad,  except 
now  and  then  within  the  last  several  years.  Belgian 
rails  for  600  miles  of  the  Orient  railroad  in  Mexico  were 
bought  with  bonds  in  December,  190 1,  at  ^6  a  ton  less 
than  the  lowest  delivered  price  obtainable  from  American 
mills,  which  have  lately  been  too  busy  to  accept  many 
foreign  orders  at  foreign  prices.^ 

Cases  Where  Protection  Worked  Well.  —  Perhaps  an 
example  of  justifiable  protection  were  Cromwell's  navi- 
gation laws  of  165 1,  forbidding  foreign  ships  to  do 
English  carrying,  except  those  of  the  country  carried  to 
or  from,  and  starting  the  English  islanders  in  an  occupa- 
tion for  which  they  were  naturally  fitted  by  circum- 
stances. Other  similar  cases  were  those  in  which  woolen 
manufacture  was  encouraged  by  law  in  England  in  the 
Middle  Ages,  and  silk  manufacture  in  France.  In  the 
present  age  of  shrewd  control  of  government  by  private 
interests,  such  help  is  not  needed  among  enlightened 
people,  and  is  very  likely  to  be  abused,     "  Protection  to 

^Do  Our  Tariff  Industries  Save  us  from  Foreign  Monopoly?  — 

Professor  Gunton  said  before  the  Industrial  Commission  (Vol.  XIII.)  that 
in  1867  the  British  charged  us  on  steel  rails,  above  their  home  price,  not 
only  the  freight,  but  also  ;?25  a  ton  extra  as  pure  monopoly  profit,  simply 
because  we  made  no  rails.  The  Yankees  must  then  have  forgotten  their 
cunning,  if  they  helplessly  paid  the  price  first  asked,  without  getting  lowest 
rates  by  going  from  one  maker  to  another  in  England,  Belgium,  and  Ger- 
many. (See  mention  of  this  on  pages  121  and  268. )  Lowering  of  prices 
of  tin-plate  after  1890  has  been  likewise  ascribed  to  starting  the  industry  in 
America.  But  if  previous  prices  afforded  excessive  profit,  and  were  likely 
to  continue,  new  mills  abroad  would  have  brought  them  down,  and  doubt- 
less new  mills  here  also  without  a  tariff  duty.  With  our  resources,  there 
was  no  more  need  for  a  tariff  to  bring  the  steel  industry  from  England  to 
America,  than  there  was  to  carry  it  from  eastern  Pennsylvania  to  the  region 
west  of  the  Alleghanies,  where  the  great  works  are  now  located. 


320  Tlie  Plain  Facts  as  to  the  Tariff. 

infant  industries  has  unquestionably  proved  successful  in 
certain  cases.  But  it  is  open  to  doubt  whether  the 
number  of  instances  of  success  has  been  sufficient  to 
justify  the  expense  involved."  ^ 

May  Build  up  Shipping  and  Prepare  for  "War.  —  Free 
traders  have  generally  approved  reasonable  navigation 
laws,  and  moderate  protection  for  a  time  in  other  cases, 
when  necessary  to  develop  those  industries  required  by 
a  nation  for  war.  They  have  sometimes  regarded  with 
tolerance  the  payment  of  a  moderate  subsidy  for  mail 
carrying  to  lines  of  vessels  needed  as  a  reserve  fleet  for 
war,  and  also  for  developing  trade.  Great  Britain  paid 
many  subsidies,  beginning  about  1840,  until  steamship 
connection  was  established  with  all  her  colonies.  Her 
present  subsidies,  which  are  in  the  form  of  payments  for 
mail  carrying  on  fast  ships  running  regularly  the  year 
round,  whether  business  is  sufficient  or  not,  are  con- 
sidered no  more  (some  say  less)  than  a  fair  return  for 
the  service.      France  and  Germany  in  late  years  have 

1  Hadley,  437. 

Produced  Some  Good  Results  in  Former  Times. — That  the  earlier 
efforts  of  governments  in  protection,  prompted  by  their  need  for  weahh  to 
tax,  and  for  denser  population  from  which  to  draw  soldiers,  were  really 
successful  in  building  up  manufactures  and  commerce,  and  in  promoting 
civilization,  was  admitted  by  Adam  Smith.  In  the  stagnant  life  of  the 
times  (1200  to  1700),  manufacturing  would  have  risen  very  slowly  except 
in  a  few  small  districts  such  as  Venice  and  Flanders,  where  it  was  caused 
to  flourish  by  natural  aptitude  and  accidental  circumstances.  (Ingram,  355. ) 
But  what  the  people  needed  was  to  be  waked  up,  and  educated  to  know 
and  do.  For  this,  protection  is  a  risky  expedient  when  not  held  carefully 
in  check  by  a  strong  and  wise  ruler.  In  England,  between  1750  and  1846, 
as  explained  in  the  preceding  chapters,  protection  was  used  by  the  ruling 
class  to  bring  the  common  people  much  nearer  starvation  than  they  had  ever 
been  in  the  more  barbarous  centuries  before.  In  France  the  glory  promoted 
by  protection  under  Colbert  followed  naturally  to  the  unspeakable  oppres- 
sion of  the  common  people  during  the  eighteenth  century,  thrown  off  by 
them  in  the  carnival  of  blood  known  as  the  French  Revolution, 


TJie  Arg  uincnis  for  Protection.  321 

paid  subsidies,  the  former  on  a  large  scale,  for  mail  ser- 
vice and  for  carrying  the  flag,  drawing  with  excessive 
profit  too  many  ships  into  business  in  the  case  of  France, 
whose  commerce  is  now  not  growing ;  and  the  United 
States,  since  1891,  has  had  a  mail  subsidy  contract  with 
the  American  line  to  England/  Payment  of  subsidies 
may  easily  be  abused.  The  advantage,  if  any,  needs  to 
be  watched  and  secured.  Building  up  the  navy  would 
seem  to  be  a  surer  way  to  get  vessels,  and  may  cost  the 
people  no  more.  That  transportation  follows  up  open- 
ings for  trade  is  far  truer  than  that  trade  follows  trans- 
portation, as  proved  by  railroads  now  built  without 
bonuses.  American  capital  and  enterprise  unaided  will 
now  operate  steamships  to  South  America  when  the 
trade  thus  to  be  developed  will  afford  more  profit  than 
they  get  otherwise.  They  let  foreigners  have  the  low 
profits  of  ocean  carrying.  Ships  from  somewhere  soon 
appear  wherever  there  is  a  paying  business  for  them. 
Europe's  shipping,  kept  equal  to  the  world's  needs,  we 
cannot  take  without  narrowing  her  ability  to  buy  our 
exports.  And  for  making  a  nation  influential  and  in- 
dependent, the  intelligence  and  wealth  derived  from 
free  trade  or  low  tariffs,  as  in  the  case  of  England,  Bel- 
gium, Holland,  and  Denmark,  are  incomparably  better 
than  the  rude  strength  of  supplying  all  at  home,  as  in 
the  case  of  Bulgaria. 

Navigation  Laws,  similar  to  those  of  Cromwell,  were 
enacted  by  most  nations,  but  were  mainly  repealed  over 
a  half  century  ago,  being  a  great  hindrance  to  com- 
merce, in  preventing  exporters   from  shipping  by  any 

^  Hadley,  443.      The  Nation,  Jan.   2,   1902,  gives  a  good  account  of 
European  subsidies.     Also  The  Fontm,  Dec.  1900.    Complete  information 
is  given  in  the  report  for  1899  of  the  Commissioner  of  Navigation. 
21 


322  TJie  Plain  Facts  as  to  the  Tariff. 

vessel  sailing-  first.  America's  remaining  navigation 
laws,  which  shut  out  foreign  ships  from  commerce  be- 
tween our  home  ports,  are  often  objected  to  as  a  relic  of 
former  centuries.  To  the  extent  that  such  laws  benefit 
vessel  owners  they  are  likely  to  harm  shippers,  with 
higher  freights  and  fewer  sailings.  The  excuse  for  such 
laws  seems  slender,  after  a  limited  time  in  which  home 
shipping  might  grow  up.  A  bill  is  now  before  Con- 
gress to  permit  foreign  vessels  to  carry  Texas  petroleum 
to  home  ports.  Excluding  passing  foreign  ships  from 
our  trade  with  Porto  Rico  lessens  her  shipping  facilities.^ 
Protection  to  Keep  Farming  from  Being  Overdone.  — 
The  argument  seems  reasonable  that  we  must  build  up 
and  maintain  manufacturing  by  means  of  the  tariff, 
because  otherwise  more  people  would  have  to  go  west 
and  engage  in  farming,  which  is  already  an  unprofitable 
business  from  overproduction  and  cheapness  of  products. 
It  seems  that  a  farmer  could  well  afford  to  pay  a  small 
extra  price  for  his  clothing,  dishes,  etc.,  in  order  to  keep 
the  makers  of  these  from  competing  with  him  in  his  own 
occupation.  But  if  about  the  proper  number  to  supply 
the  demand  in  each  case  were  engaged  in  farming  and 
in  cloth  making,  would  a  change  of  the  tariff  change 
that  demand  ?  Would  not  the  world  continue  to  want 
cloth  as  before  ?  If  American  cloth  makers  gave  up 
the  business  because  they  had  lost  their  allowance  from 
the  public,  other  cloth  makers  somewhere  would  have  to 
take  it  up.  Foreign  prices  of  cloth  would  rise  from 
reduction  of  American  supply,  and  the  American  cloth 
makers  would  find,  if  their  business  was  suited  to  our 
conditions,  that  the  place  for  them  was  in  their  old 
occupation,  not  in  farming.     If  they  had  to  reduce  their 

"'To  the  colonists  the  navigation  laws  were  an  unmitigated  evil," 
(Bancroft.) 


The  Arguments  for  Protection.  323 

price  a  little  to  meet  the  foreign  price,  home  consump- 
tion would  increase,  and  by  running  their  mills  more 
actively  they  might  clear  from  a  smaller  profit  nearly  as 
much  as  before,  while  the  poor  would  be  able  to  wear 
more  clothing.^ 

The  Advantages  of  Diversified  Industry,  when  ob- 
tained by  raising  prices  through  protection,  are  likely  to 
be  outweighed  by  the  check  to  diversified  consumption. 
A  variety  of  goods  to  enjoy  at  low  prices  may  be  more 
important  to  the  people  than  the  added  variety  of  em- 
ployment.^ The  American  rate  of  consumption  aver- 
ages the  highest  in  the  world.  Many  of  our  workmen 
might  save  two-thirds  of  their  wages  if  they  stinted 
themselves  like  Europeans.  But  that  is  no  reason  why 
they  should  not  enjoy  more  if  nature  affords  it.  There 
are  some  millions  of  men  in  the  South  earning  each  not 
over  ^i  50  a  year,  and  not  a  few  in  the  West  whose  work 
at  ;^i  and  1^1.25  a  day  is  not  regular.  Admitting  good 
values  from  abroad  might  not  only  give  them  cheaper 

1  Would  Not  be  Cheaper  by  the  Full  Amount  of  the  Duty. — When 
the  tariff  kept  the  American  price  of  pig  iron  $'J  a  ton  higher  than  the  Brit- 
ish, removal  of  the  duty  would  not  have  taken  from  our  price  all  the  dif- 
ference. Access  to  America  for  British  iron  would  have  raised  its  price, 
perhaps  about  half  the  difference,  while  a  fall  in  America,  to  the  extent  of 
the  other  half,  would  have  closed  those  American  furnaces  producing  at 
highest  cost.  But  in  time,  if  mines  in  England  would  have  yielded  more 
without  increase  of  cost  per  ton,  starting  of  new  furnaces  there  would  have 
lowered  the  English  price  to  what  it  was  before,  which  former  price  had 
then  yielded  necessary  profit.  This  price,  plus  freight,  would  then  have 
ruled  in  America,  and  all  American  producers  unable  to  meet  it  would  have 
left  the  business.  More  likely,  however,  as  results  have  indicated,  lower- 
ing price  in  America  would  have  increased  consumption  far  beyond  the 
capacity  of  English  mines,  and  improvements  lowering  cost  would  have 
enabled  most  of  the  American  producers  to  continue,  and  eventually  to  take 
their  present  position  at  the  head.  Europe  could  not  produce,  above  her 
own  needs,  enough  manufactures  to  supply  a  tenth  of  the  American  demand 
(Shearman).  *Hadley,  439. 


324  TJie  Plain  Facts  as  to  the  Tariff. 

manufactures,  but  also,  by  providing  a  better  outlet  for 
the  surplus,  raise  farm  prices  and  money  wages/ 

To  Avoid  Exhaustion  of  Mines  and  Forests.  —  The  old 
argument  that  by  building  up  manufactures  through  pro- 
tection a  nation  should  avoid  stripping  its  mines,  forests, 
and  soil,  to  exchange  raw  materials  abroad  for  finished 
goods — is  a  reason  why  America  should  now  admit  free 
of  duty  lumber,  coal,  salt,  iron  ore,  wool,  hides,  and 
barley,  and  thus  save  her  share  of  the  earth's  crust  at  the 
expense  of  other  people's  shares.  When  this  argument 
was  urged,  duties  on  these  raw  materials  would  not  have 
been,  as  at  present,  a  source  of  large  gain  to  their  pro- 
ducers ;  and  the  protectionists  of  that  period  (18 15  to 
1 860)  had  doubtless  a  more  sincere  regard  for  the  public 
good  than  the  majority  of  those  in  later  years.  Then 
there  was  little  desire  among  teachers  of  protection 
to  restrict  imports  of  raw  materials,  of  which  a  variety 
and  abundance  were  obviously  important  to  growth  of 
manufacturing.^ 

1 "  Consumption  Adds  Nothing  to  the  resources  of  the  people ;  it 
only  takes  away  from  their  ability  to  pay  any  charges."  (Roberts,  250.) 
This  is  true  of  protection's  addition  to  the  cost  of  living.  Saving  by  going 
without  the  comforts  that  improve  health,  mind,  and  capability  is  seldom 
good  for  a  person  or  his  country,  unless  done  temporarily  for  a  purpose. 
At  any  rate,  saving  soon  involves  consumption — materials  for  a  house,  a 
piano  or  repairs  for  the  home — most  of  these  perhaps  raised  in  price  by 
protection.  Borrowers  of  savings  may  pay  less  interest,  selling  fewer  prod- 
ucts because  protective  prices  on  other  things  leave  people  less  to  spend. 
Depositing  in  savings  banks  is  praiseworthy,  though  it  usually  is  hindered 
instead  of  helped  by  protection  ;  and  in  some  towns  without  savings  banks 
people  save  otherwise  and  enjoy  a  high  degree  of  well-being. 

2 The  Duties  on  Farm  Products. — In  later  years  the  present  duties  on 
all  kinds  of  agricultural  products  were  levied  to  make  a  show  of  balancing 
to  the  farmer  (for  whom  protectionists  are  fond  of  expressing  friendly  re- 
gard) the  higher  prices  he  must  pay  for  manufactures  by  reason  of  protec- 
tion ;  and  also  to  get  as  many  voters  as  possible  interested  in  maintaining 
the  protective  system.     Woolen  manufacturers  willingly  submitted   to  a 


The  Arguments  for  Protection.  325 

Protection  of  Scarce  Materials  Most  Harmful. — It  is  in 
these  cases  of  materials  limited  in  supply  by  nature  that 
protection  is  most  harmful  to  a  country.  With  them, 
unlike  ordinary  manufacturing,  more  people  cannot  enter 
the  business  with  equal  chances  and  bring  down  price. 
The  tariff  benefit  may  go  almost  wholly  as  economic  rent 
to  the  owners  of  the  natural  supply,  appearing  especially 
in  the  high  value  of  mining  shares.  These  owners,  who 
need  pay  only  the  usual  wages,  easily  act  together  in  a 
monopolistic  way,  and  impose  on  the  home  people  who 
gave  them  the  tariff.  "  American  copper  has  habitually 
been  sold  in  London,  in  competition  with  foreign  copper, 
at  a  price  less  than  was  paid  by  American  consumers  at 
home.  .  .  .  Equally  conspicuous  is  the  case  of  lumber."^ 
The  effect  of  the  abnormal  profit  afforded  by  the  tariff  is 
to  hasten  exhaustion  of  the  limited  supply.  Producers 
make  output  as  large  as  possible,  because  the  tariff  ad- 
vantage may  not  be  continued.  Though  America  has 
long  led  the  world  in  producing  copper  and  lumber,  both 
in  quantity  and  cheapness,  the  duty  on  copper  was  re- 
tained until  1894,  and  the  duty  on  lumber,  then  repealed, 
was  restored  in  1897.  Nearly  every  kind  of  mineral  is 
protected.     In  the  case  of  nickel,  mica,  quicksilver,  zinc, 

duty  on  wool,  despite  the  necessity  for  large  imports,  to  get  the  support  of 
farmers  for  a  duty  now  averaging  75  per  cent  on  woolen  goods.  To  ours, 
the  greatest  producing  and  exporting  nation,  most  of  these  agricultural 
duties,  such  as  15  cents  a  bushel  on  corn  and  oats,  25  cents  on  potatoes, 
and  3  cents  a  head  on  cabbage — are  useless  to  all  farmers  except  those 
near  such  border  cities  as  Detroit  and  Buffalo  ;  and  there,  what  they  gain 
by  the  tariff  is  hardly  other  than  a  loss  to  the  local  consumers.  Increased 
prices  to  the  farmers  in  times  of  local  scarcity  not  to  be  relieved  from 
Canada,  cannot  increase  materially  their  buying  in  the  city.  So  far  as 
Canadians  were  allowed  by  their  tariff  to  take  goods  home,  their  coming  to 
the  city  would  increase  its  sales. 

^  Hadley,  436.  The  print  paper  trust,  protected  against  Canada,  and 
cornering  our  best  forests,  is  stripping  them  with  monopoly  gain. 


326  The  Plain  Facts  as  to  the  Tariff. 

and  other  commodities  comparatively  rare,  the  duty  may 
benejfit  only  a  few  scores  or  hundreds  of  people,  while  all 
the  rest  of  the  population  may  have  to  bear  the  tax  per- 
manently, perhaps  in  increased  price  of  widely  used  man- 
ufactures, without  hope  of  a  lowering  of  price  from  home 
competition  in  the  opening  of  new  mines. 

People  Too  Dull  to  Manufacture  Want  Few  Foreign 
Goods.  —  Getting  manufactured  goods  abroad,  by  ex- 
change of  farm  products  and  raw  materials,  need  not 
exhaust  soil  and  forests  ;  because  if  people  are  too  un- 
enterprising to  start  needed  industries  without  a  tariff, 
or  at  most  with  a  tariff  quickly  to  be  repealed,  they  are 
also  too  backward  to  want  many  foreign  goods.  The 
South  American  people  have  scarcely  sampled  their 
resources.  And  where  new  industries  require  a  con- 
tinued tariff,  the  extra  price  makes  necessary  to  the  farmer 
a  larger  crop  than  before,  and  greater  exhaustion  of  soil, 
to  get  the  same  quantity  of  manufactured  commodities. 
Shipping  products  three  miles  to  a  local  market  exhausts 
the  soil  just  as  much  as  shipping  them  3,000  miles  to 
Europe.  In  few  cases  is  manure  hauled  from  a  town 
three  miles  out  onto  farms  ;  and  changing  city  sewage 
into  fertilizer,  on  a  systematic  scale,  has  not  yet  come 
into  practice.  The  way  to  enrich  land,  as  every  farmer 
knows,  is  to  keep  live  stock,  selling  grain  and  fodder  in 
the  form  of  meat  products,  whose  price  is  now  largely 
fixed  by  the  quantity  of  them  that  can  be  sold  abroad. 

To  Relieve  Pressure  on  Land. — Turning  people  from 
farming  into  manufacturing  might  relieve  pressure  on 
land,  lowering  farm  rents,  and  thus,  by  providing  employ- 
ment requiring  higher  skill  and  better  pay,  might  in- 
crease total  wages  of  the  working  classes  and  decrease 
total  income  of  land-owners.     But  this  effect  would  be 


The  Arguments  for  Protection.  327 

temporary  with  the  land  overflowed  by  a  stream  of  im- 
migration, much  of  it  attracted  by  protected  industries  ; 
besides  the  effect  of  higher  prices  to  keep  down  the 
wage  worker's  commodities  to  what  he  had  before.  Any- 
how, lowering  the  values  of  landlords'  possessions  has 
never  been  desired  in  America,  Here  the  masses  of  the 
people  have  always  owned  land,  and  in  no  other  way  has 
wealth  been  so  widely  and  beneficially  distributed  as 
through  rise  in  the  value  of  millions  of  small  farms. ^ 

Dumping  Goods  in  England  Below  Cost.  —  The  prac- 
tice of  dumping  in  Great  Britain,  at  prices  below  cost, 
surplus  manufactures  shipped  from  Germany  and  America 
by  protected  producers,  who  thus  keep  up  their  prices 
at  home,  is  discussed  by  Mr.  J.  P.  Young,  in  The  Forian 
of  June,  1 90 1,  as  if  it  had  become  a  settled  policy. 
This  perhaps  is  more  than  these  protected  producers 
would  admit,  especially  in  the  present  demand  for  reci- 
procity. The  purpose  of  Mr.  Young's  article  is  to  show 
that  the  British  should  adopt  protection  to  save  their  in- 
dustries, and  to  utilize  better  their  farm  resources.  Such 
dumping,  if  it  is  not  to  be  depended  on  as  a  regular  flow, 
is  undoubtedly  an    injury,   despite  the    good  values   it 

'  Professor  Patten,  with  a  view  more  applicable  to  crowded  Europe 
than  to  America,  though  he  calls  his  a  distinctively  American  economy, 
says  that  while  exporting  farm  products  gives  the  foreigner  cheaper  food, 
its  effect  to  raise  their  price  burdens  the  home  consumer  with  higher  rent 
profit  to  land  owners,  who  have  some  advantage  of  natural  monopoly ;  and 
that  it  also  confines  use  of  land  to  single  and  soil-exhausting  crops,  such  as 
cotton  and  wheat,  which  the  foreigner  demands.  For  America  the  reply 
is  that  no  business  has  been  so  depressed  as  farming  ;  that  in  none  would 
higher  price  of  its  products  (a  natural  price  here)  benefit  half  so  many 
deserving  people  (all  other  people  too  with  better  markets  among  farmers); 
that  from  exportable  crops  many  times  more  land  would  gladly  be  spared 
for  new  crops  than  any  possible  demand  can  require  ;  and  that  now  the 
exported  crops  are  numbered  by  dozens,  and  include  most  of  those  of 
importance. 


328  Tlie  Plain  Facts  as  to  the  Tariff. 

affords  to  buyers.  The  greatest  economic  benefit  imag- 
inable, such  as  the  discovery  of  a  process  for  doubling 
all  crops,  would  have  at  first  the  calamitous  effect  of  sud- 
denly forcing  about  half  the  farmers  into  other  business. 
If  this  doubling  could  happen  but  one  year,  it  would 
perhaps  be  better  not  to  have  it  at  all,  and  avoid  ruinous 
disturbance  of  business.  Possibly  a  tariff  duty,  to  be 
imposed  by  customs  officers  when  dumping  was  at- 
tempted, would  be  accepted  by  free  traders  as  allowable. 
But  dumping  is  not  likely  to  continue.  It  occurs  when 
prices  are  high  in  protected  lands,  and  when  other  lands 
need  the  goods  dumped. 

Nature  Moves  the  World's  Workshop. — Cobden's  plan 
to  make  Great  Britain  the  world's  workshop  seems  to 
have  succeeded  well  enough,  giving  her  that  position  for 
another  half  century.  He  surely  knew  that  she  might 
lose  her  rank  from  future  discoveries.  America's  present 
supremacy  in  iron  production,  taken  from  Great  Britain, 
may  pass  before  long  to  China,  whose  deposits  of  coal 
and  iron,  said  to  be  illimitable,  will  be  developed  by 
Europeans  and  Americans.  Because  Great  Britain  can- 
not hold  the  supremacy  is  no  reason  why  her  people 
should  not  continue  at  the  work  by  which  they  can  get 
most  aggregate  value.  It  is  by  money  values  that  in- 
dustry is  measured,  not  by  bushels  and  tons.  However 
great  the  desire  of  the  nations  to  engage  in  all  lines  of 
production,  and  be  self-sufficient,  they  will  find  a  way  to 
admit  British  goods  when  that  proves  necessary  to  hold 
the  customer  buying  more  than  any  two  other  nations. 
To  their  home  industry  the  market  in  Great  Britain  is 
worth  more  than  the  additional  home  market  to  be 
gained  by  shutting  out  the  smaller  volume  of  purchases 
from  her.     Distant  trading  does  not  seem  to  be  "  the 


The  Arguments  for  Protection.  329 

greatest  of  all  waste  "  for  Massachusetts,  whose  people 
get  their  bread  and  meat  cheapest,  not  from  their  soil, 
but  by  trading  manufactures  for  them  in  the  far  West, 
The  case  is  the  same  with  Great  Britain.  Very  likely 
her  ship  freight  from  Russia  and  Argentina  is  lower  than 
the  rail  freight  to  Massachusetts  from  Dakota. 

The  Wastes  of  Transporting  Goods  from  one  country  to 
another,  absorbing  capital,  mercantile  skill,  and  labor,  to 
a  vast  aggregate,  and  hastening  the  exhaustion  of  the 
world's  stores  of  coal,  impresses  Mr.  J.  P.  Young  with  a 
conviction  that  the  wisdom  of  protection,  to  develop  man- 
ufacturing where  materials  are  produced,  must  in  time 
be  recognized  and  followed  universally.^  Such  a  view, 
at  first  thought,  seems  reasonable.  Shipping  cotton 
from  Alabama  to  England  and  Massachusetts,  to  be  made 
into  cloth  and  shipped  back,  appears  as  wasteful  and 
short-sighted  as  carrying  water  a  half  mile  in  pails  in- 
stead of  digging  a  well  at  the  kitchen. 

But  TMs  Idea  is  No  Discovery. — For  transportation,  as 
for  most  other  things,  there  is  a  reason,  as  indicated  in 
the  preceding  chapter.  The  people  of  the  South  are  at 
liberty  to  make  cotton  cloth  for  the  world,  and  to  drive 
out  of  business  the  manufacturers  of  England  and  Massa- 
chusetts. Pennsylvanians  are  at  liberty  to  make  their 
steel  into  rails  and  machinery  for  the  world.  But  how 
are  the  extra  cloth  and  machinery  to  be  sold  unless 
transported,  and  how  is  the  world  to  pay  for  them  unless 
other  goods  are  brought  back  ?  Dakota's  cheap  food, 
with  no  other  materials,  does  not  attract  Massachusetts 
factories ;  neither  is  Manchester  or  Lowell  moved  to 
Alabama  to  save  freight ;  and  the  common  sense  of  busi- 

^  The  Forum,  Dec.  1900.  Mr.  Young  is  an  editor  of  the  San  Fran- 
cisco Chronicle,  and  a  protectionist  author  of  high  standing. 


330  The  Plain  Facts  as  to  the  Tariff. 

ness  will  bear  the  test  here  as  elsewhere.  With  freight 
at  20  cents  per  100,  it  costs  only  ^1.20  to  carry  from  St. 
Paul  to  New  York  one  man's  supply  of  wheat  for  a  year 
(10  bushels,  600  pounds).  If  freight  on  raw  cotton  were 
a  heavy  expense  per  yard,  New  England  factories  would 
have  moved  South  long  ago,  and  England  would  have 
been  driven  out  of  the  business.  Bulky  materials — iron 
and  lumber — have  always  passed  through  the  first  forms 
of  manufacture  where  they  are  found.  But  in  fine  ma- 
chinery, freight  on  iron  is  a  trifle  compared  with  posses- 
sion of  developed  skill ;  and  in  such  manufacture  Worces- 
ter and  Providence,  500  miles  away,  keep  ahead  of  the 
Pennsylvania  cities.  Besides,  the  former  may  be  nearest 
to  the  places  where  their  machinery  is  chiefly  sold. 

The  Life  of  Progress  in  Manufacture  is  a  widening 
market,  because  the  main  purpose  of  invention  is  to 
enlarge  and  cheapen  product.  The  inducement  to  im- 
prove is  to  get  more  to  sell.  This  beneficent  process 
would  be  blighted  if  men  of  skill  in  manufacture  had  to 
change  business,  or  sink  into  stagnation,  when  the  home 
market  was  supplied,  while  to  bring  in  enough  immi- 
grants to  consume  all  would  soon  overtax  other  re- 
sources. Having  learned  her  trade  from  many  years  of 
experience,  Manchester  kept  on  weaving  cotton  until 
she  had  to  send  it  all  over  the  world.  Mr.  Young's 
prediction,  that  in  time  all  external  trade  except  non- 
competing  will  be  acknowledged  as  wasteful,  and  re- 
strained by  protection,  requires  that  an  industry  be  dis- 
couraged as  it  approaches  high  development.  Ability 
to  manufacture  and  trade,  formerly  very  rare,  and  still 
not  over-plentiful,  is  the  main  essential.  The  expenses  of 
gathering  materials  and  transporting  goods  are  second- 
ary.    Nature  did  not  fit  many  people  to  do  it  all,  under 


The  Arguments  for  Protection.  331 

a  civilization  higher  than  that  of  the  backwoods.  There 
was  a  great  saving  of  freight  before  the  day  of  railroads. 
Then  everything,  which  did  not  include  much,  was  made 
in  the  pioneer  community,  nothing  being  shipped  in 
or  out. 

All  Manual  Labor  is  Moving  Things. — No  ;  the  burden 
of  transportation  and  of  merchandising  was  made  neces- 
sary by  nature,  being  a  part  of  the  division  of  labor ; 
and  for  the  same  reason  no  doubt  that  food  grows  in  the 
form  of  grain  instead  of  bread.  All  manual  labor,  as 
was  pointed  out  by  Mill,  consists  simply  of  moving 
things  from  one  place  to  another.  The  object  of  pro- 
duction is  values,  not  quantities.  There  is  less  wood  in 
a  chair  than  there  was  in  the  lumber  used.  Carrying 
wheat,  without  adding  an  ounce,  to  where  its  value  is 
double,  produces  as  much  wealth  as  growing  it  at  first.^ 

Admitted    Need    for    a   New    Argument.  —  The   Eco- 

7iomic  Basis  of  the  Protective  System  is  the  title  given 

by  Mr.  Young  to  his  plan  for  getting  rid  of  shippers' 

profits,  and  of  waste  of  coal  on  trains  and  steamships.     It 

is  advanced  as  a  basis  for  permanent  protection,  with  the 

admission  that  now,  since  our  industries  have  grown  old 

and  strong,  protection  must  fall  if  supported  only  by  the 

'  Making  Things  or  Selling  Things  ? — The  claim  that  protection 
favors  production,  while  free  trade  seeks  to  exalt  commerce  at  production's 
expense  (Roberts,  204),  has  in  mind  new  production  started  by  protection. 
This  not  only  displaces  the  same  kind  of  production  abroad,  but  the  higher 
price  causes  fewer  of  the  goods  to  be  used  and  made.  Making  and  sell- 
ing cannot  be  separated.  In  modern  society  makers  do  not  use  their  own 
goods,  but  seek  the  money  they  sell  for.  A  new  protective  law  narrows 
the  market  of  producers  in  other  lines,  lessening  the  money  amount  of  their 
production,  besides  taking  their  money  in  high  prices.  The  consumption 
of  goods,  and  hence  their  production,  is  increased  to  the  highest  limit  by 
commerce,  which  takes  them  to  every  region  where  they  can  be  sold. 
Roberts  (page  245)  dwells  on  the  risks  of  commerce  as  an  effort  io  get 
profit.     Is  production  less  risky,  and  if  it  were  would  not  people  find  it  out  ? 


:)o- 


The  Plain  Facts  as  to  the  Tariff. 


infant  industry  argument.  But  is  not  Mr.  Young's  idea 
the  same  thing  ?  How  could  protection  keep  business 
at  home  except  by  turning  capital  from  strong  industries, 
reaching  outward  for  markets,  into  weak  industries,  which, 
without  a  contribution  from  the  public,  would  be  left  in 
infancy  or  never  have  been  started  ?  To  try  by  pro- 
tection to  develop  all  of  a  country's  resources  together 
would  be  the  same  in  principle  as  to  have  required  the 
early  lumbermen  to  clear  land  of  all  its  timber.  They 
selected  the  pine,  because  it  alone  had  value  and  would 
sell.  The  hardwood  was  useful,  but  nobody  then  wanted 
it,  and  to  cut  it  to  rot  would  have  been  a  waste  of  both 
labor  and  timber.  It  has  since  become  valuable,  and 
labor  spent  upon  it  brings  now  a  full  return. 

Resources  Wasted  by  Developing  Too  Soon.  —  Instead 
of  saving,  therefore,  protection  not  only  wastes  labor  and 
capital,  by  turning  them  from  one  industry  into  another 
from  which  they  produce  less  value,  but  it  also  wastes 
natural  resources  by  developing  them  while  their  value 
is  yet  low.  Natural  direction  of  industr}^  by  comparative 
values  is  safest.  The  usefulness  to  be  considered  in  labor, 
materials,  and  products,  is  shown  pretty  accurately  by 
price.  Here,  as  elsewhere,  money  talks.  Alleged  value 
that  nobody  will  pay  for  need  not  cause  much  concern — 
not  to  the  extent  of  taxing  people  to  pay  for  its  develop- 
ment. As  resources  yielding  most  wealth  are  exhausted, 
others,  becoming  more  v^aluable,  take  their  place.  Saginaw 
and  Muskegon  first  attained  great  wealth  from  sawing  logs. 
Exhaustion  of  available  timber  turned  them  to  planing 
mills  and  box  factories,  and  later  into  various  kinds  of 
manufacture.^     Farming  in  some  Michigan  counties  noted 

'If  the  government,  for  the  year  1870,  had  paid  our  manufacturers  of 
pig  iron  seven  per  cent  on  their  capital,  and  tlieir  men  full  wages,  allowing 


TJie  Arguments  for  Protection.  333 

for  fertility  was  not  taken  up  until  the  more  profitable  lum- 
bering gave  out,  and  a  market  appeared  for  farm  products. 
To  Keep  People  Active  in  Many  Lines  of  Industry, 
stirring  or  drawing  them  from  a  static  into  a  dynamic 
condition,  was  the  main  thought  of  Professor  S.  N.  Pat- 
ten's Economic  Basis  of  Protection,  published  in  1890, 
when,  permanent  protection  being  desired,  the  infant 
industry  argument  was  losing  force,  and  the  high  wage 
argument,  doubtless,  was  deemed  to  need  help.  As 
explained  in  a  previous  chapter,  people  might  be  encour- 
aged into  highest  and  best  directed  activity  —  obtaining 
largest  possible  product,  and  enjoying  from  it  highest 
wages  and  most  elevating  consumption  —  through  pro- 
tective laws  made  and  changed  continually,  to  suit  the 
changing  condition  of  each  industry,  by  a  supernatural 
power  of  perfect  wisdom  and  justice.  But  in  this  country 
we  have  only  men  of  human  frailty  for  rulers,  and  tariff 
laws  are  inevitably  moulded  by  the  very  persons  whom 
they  enable  to  raise  prices.  Hence,  the  chances  are  that 
protection  will  tax  a  good  many  more  people  than  it  will 
encourage,  and  keep  society  more  static  than  it  would 
otherwise  have  been.  This  gain  to  people  having  influ- 
ence, taken  with  the  old  arguments,  is  a  sufficient  reason 
why  at  all  times  many  statesmen  have  favored  protec- 
tion. There  is  no  need  to  seek  for  another  reason  in  the 
economic  basis  Mr.  Young  has  proposed. 

men  and  furnaces  to  be  idle,  and  admitting  foreign  pig  iron  free  of  duty, 
the  American  people  (if  foreign  output  could  have  increased  accordingly) 
would  have  saved  $2,000,000  in  cash  on  the  quantity  bought,  and  ;?l8,- 
000,000  worth  of  coal  that  was  consumed,  besides  leaving  4,000,000  tons 
of  ore  for  a  future  time  when  it  could  be  developed  at  a  profit,  and  releas- 
ing 509  engines  for  other  work.  (Sumner,  32.)  In  the  rapid  develop- 
ment of  that  period  there  was  no  lack  of  other  production  for  the  labor  and 
capital,  and  cheaper  iron  would  have  been  a  decided  benefit,  lowering  the 
excessive  cost  of  railroads. 


334  '^^'-^  Plain  Facts  as  to  the  Tariff. 

To  Gather  People  Into  Towns  and  Cities,  under  the  civ- 
ilizing influences  of  manufacturing,  and  away  from  the 
duHness  and  coarseness  of  country  life,  was  urged  as  a 
desirable  effect  of  protection  by  Professor  Francis  Bowen, 
in  his  American  Political  Economy,  published  in  1870. 
This,  like  the  ideas  discussed  in  the  preceding  paragraphs, 
is  one  form  of  the  argument  for  diversification  of  industry. 
He  even  mentions  our  country  as  being,  "  so  to  speak, 
cursed  with  great  advantages  for  agriculture,"  which,  he 
says,  scatters  people,  and  taken  alone  can  never  develop 
skill,  taste,  and  wealth.  He  thought  the  ancient  colo- 
nies, whose  people  had  to  gather  in  walled  cities  to  save 
their  lives  and  goods,  developed  a  civilization  preferable 
to  that  of  our  American  colonies,  whose  people,  shrinking 
from  no  danger  or  hardship,  stalked  westward  over  forest 
and  plain,  settling  upon  large  farms  of  the  best  land,  how- 
ever distant  it  might  be. 

Are  City  People  the  Nation's  Strength  ?  —  Professor 
Bowen  wrote  before  our  horizon  was  darkened  by  the 
grave  problem  of  the  large  cities,  with  their  concentra- 
tion of  vice  and  crime,  and  of  the  worst  kind  of  igno- 
rance— inability  to  get  a  living.  But  the  latter  condition 
was  common  earlier  in  our  chief  cities,  before  the  time 
of  large  immigration — during  almost  every  winter  from 
1825  to  1850.^  At  present  country  people  of  equal 
thrift  and  effort  have  no  such  strained  and  uncertain 
support  as  the  many  thousands  of  operatives  at  low 
wages  in  cotton  mills.  In  mere  book  knowledge,  and 
general  culture,  a  city  of    1,000,000  averages  below  a 

iW.  J.  Ghent,  The  Workman's  Golden  Age,  in  T/ie  Forum,  August, 
I901.  Steadily  increasing  wages,  and  improving  conditions  for  labor,  set 
in  about  1850,  in  the  solidly  prosperous  low  tariff  period  of  1846-60,  in 
■which  the  inflated  currency  panic  of  1857  was  recovered  from  in  one  year. 
(Sumner,  56.) 


The  Arguniatts  for  Protcctiori.  335 

city  of  100,000,  while  it  may  be  that  the  highest  average 
is  in  cities  of  about  10,000  or  less.  And  small  county 
seat  market  towns  average  in  this  respect  but  little  below 
other  places  of  equal  size  having  factories. 

Can  Factories  Exist  Everywhere  ?  —  Not  by  any  means. 
For  Massachusetts  and  England,  possession  of  capital 
and  skill  are  no  more  essential  to  their  manufacturing 
than  the  fact  that  other  regions,  many  times  larger,  such 
as  our  West  and  Southwest,  and  as  Spain,  Turkey,  and 
China,  have  few  or  no  factories  of  the  kind  considered, 
but  buy  the  wares  of  Massachusetts  and  England.  Even 
in  the  one  small  manufacturing  country  or  region,  the 
factories  of  each  kind  tend  to  gather  at  a  few  most  suit- 
able points.  England's  cotton  factories  are  within  thirty 
miles  of  Manchester.  American  woolen  factories  are 
chiefly  concentrated  in  a  few  small  sections  of  Pennsyl- 
vania and  southeastern  New  England.  In  Battle  Creek, 
Mich.,  owing  doubtless  to  the  great  success  of  one  of  the 
first,  twenty-four  health  food  concerns  have  sprung  up 
in  the  last  several  years.  In  Danbury,  Conn.,  thirty  or 
more  hat  factories  have  risen.  In  any  state  or  country, 
a  manufacturing  city  is  usually  noted  for  one  or  a  few 
special  lines  of  industry. 

Every  Region  a  Field  for  Varied  Talents.  —  In  view 
of  the  above  facts,  it  is  clear  that  a  community  cannot 
choose  industries  at  will.  Extensive  and  highly  devel- 
oped factories,  producing  the  same  product,  exist  now  as 
a  rule  at  few  places,  and  are  convenient  to  a  small  portion 
of  the  country's  or  the  world's  population.  Few  as  they 
are,  finding  sale  for  their  goods  is  more  difficult  than 
making  them.  Are  the  mass  of  humanity  then  doomed 
to  be  rude  laborers,  whose  large  number  Professor  Bowen 
thought  the  greatest  cause  of  national  poverty  ?     Non- 


336  TJie  Plain  Facts  as  to  the  Tariff. 

manufacturing  people  are  seldom  troubled  about  this. 
Some  variety  of  occupations  exists  everywhere,  and  in 
the  country  districts  there  is  a  very  fair  development  of 
talents.  Country  merchants,  even  farthest  back  in  the 
mountains,  are  capable  men,  buying  up  various  products, 
and  dealing  on  an  equality  with  wholesalers  in  cities. 
Many  of  them,  or  their  sons  and  clerks,  eventually  en- 
gage in  business  in  large  towns  and  cities,  or  travel  for 
wholesale  houses.  Everywhere  railroads  afford  a  mind- 
developing  occupation  to  country  youth  not  content,  or 
not  needed,  on  the  farm.  Stock  raisers  from  the  Alle- 
ghanies  take  their  cattle  in  person  to  Baltimore,  and  pos- 
sess not  only  money,  but  a  full  measure  of  shrewdness. 
Buying  up  and  marketing  scattered  timber,  and  operating 
small  saw  mills,  mines,  and  occasionally  local  factories, 
afford  a  ready  field  for  enterprise,  with  some  variety  of 
employment.  The  villages  require  professional  men  and 
a  few  mechanics ;  everywhere  some  knowledge  of  ma- 
chinery is  to  be  gained  by  working  in  local  flour  mills, 
and  with  threshing  machines. 

Going  from  Home  Develops  Young  Men.  —  While 
these  openings  may  not  be  available  for  many,  not  many 
in  a  sparse  population  may  be  fitted  to  better  their  con- 
dition by  leaving  the  farm.  And  those  not  finding  suit- 
able occupation  at  home  are  more  highly  developed  and 
benefited,  and  their  country  with  them,  by  striking  out 
to  seek  their  fortunes  in  the  manufacturing  cities  and  in 
the  West.  In  any  state  having  a  tolerable  system  of 
schools,  the  fit  among  the  country  people  are  well  pre- 
pared to  hold  their  own  anywhere.  Millions  of  young 
men  since  the  war  have  gone  from  the  southeastern  agri- 
cultural states  to  grow  up  with  the  West,  and  with  the 
Northern  cities.     They  have  been  more  successful  than 


The  Arguments  for  Protection.  337 

if  they  had  learned  some  factory  trade  at  home,  like 
Europeans  who  follow  a  trade  at  one  place  for  gene- 
rations, until  they  lose  capacity  of  self-help.  Young  men 
go  west  from  New  England  cities  too,  leaving  the  fac- 
tory work  for  foreigners.  Factories  are  desirable  ;  every 
town  that  can  should  have  them  ;  but  only  a  small  pro- 
portion of  the  earth  can  have  manufacturing  as  its  main 
support.  Yet  for  the  rest  nature  has  provided  a  very 
fair  range  of  opportunity.^ 

'  Not  All  the  Doctrinaires  Were  Free  Traders. — Professor  Bowen 
(page  73)  said  that  in  a  country  having  4,000,000  farmers,  changing  3,000,- 
000  of  them  into  artisans  would  make  the  yearly  product  7.]/^  times  as  large ; 
that  in  buying  products  of  skilled  labor  with  products  of  rude  labor,  the 
labor  of  three  men  is  given  for  the  labor  of  one  ;  that  the  1 ,000,000  farmers 
left,  with  just  as  many  to  feed  as  before,  could  get  good  prices  and  afford 
to  pay  more  for  manufactures  protected  by  a  tariff;  and  that  land  fertility 
may  doom  people  to  drudgery  for  the  paltry  advantage  of  cheaper  manu- 
factures from  abroad.  Can  protection  be  made  to  yield  such  tremendous 
benefits?  Every  assertion  involved  seems  to  be  untrue.  If  capital  and 
capacity  to  change  3,000,000  into  artisans  could  be  acquired  in  a  generation, 
other  nations,  to  exchange  for  the  goods  made,  would  have  to  increase 
their  production  likewise,  not  making  the  same  goods,  to  avoid  a  glut,  but 
producing  other  things,  most  likely  the  very  products  the  3,000,000  had 
previously  grown  on  farms,  and  many  more  of  them,  if  each  of  the  new 
artisans  turned  out  a  value  trebled.  It  would  not  be  necessary  to  tax  the 
public  to  pay  capitalists  through  a  tariff  price  for  engaging  in  manufacturing 
if  it  would  treble  the  value  of  a  common  laborer's  work.  He  gets  only  his 
^l  to  ^1.50  a  day  in  steel  mills  and  factories,  the  same  as  on  railroads  and 
on  farms.  Even  when  skilled  and  running  rapid  machinery,  men  averaged 
only  ^1.13  a  day  in  cotton  mills  in  1891  (Levasseur,  310),  and  in  the  ex- 
pensive living  of  New  England  obtained  less  with  their  money  than  labor- 
ers at  the  same  wages  in  the  agricultural  West.  One  might  as  well  advise 
men  to  become  bank  presidents  as  steel  rollers  earning  ^10  to  ;55i2  a  day. 
Of  the  two  classes,  bank  presidents  are  far  more  numerous.  Not  many  are 
fitted  to  enter  highly  paid  occupations,  and  there  is  not  room  for  half  of 
those  who  are.  The  people  of  Lancashire,  almost  wholly  occupied  with 
machinery,  have  nothing  like  the  abundant  living  of  Texas  people  who 
never  see  a  factory.  The  mention  of  fertile  land  and  fewer  farmers  reveals 
the  idea  of  benefit  from  scarcity  and  high  prices.  Of  such  benefit  Europe 
knows  too  well. 
22 


338  TJie  Plain  Facts  as  to  the  Tariff. 

Making  the  Most  of  a  Nation's  Possibilities,  as  of  a  per- 
son's, consists  truly,  as  the  German  protectionist  Frederick 
List  taught  in  his  great  work  on  national  economy  pub- 
lished in  1 841 — in  educating  its  people's  skill  and  pru- 
dence, and  in  so  applying  their  powers  to  its  natural 
resources  as  to  get  the  greatest  results  in  wealth  and 
well-being,  not  this  year  nor  this  decade,  but  in  the  long 
run  of  the  indefinite  future.  He  taught  that  producing 
farm  products  and  raw  materials,  under  free  trade,  was 
best  for  Spain  and  South  America,  not  yet  being  fitted 
to  manufacture  ;  that  free  trade  was  best  for  England 
also,  being  fully  developed  in  manufacturing,  having 
served  her  apprenticeship  under  protection  ;  but  that  pro- 
tection was  best  for  Germany  and  America,  in  their  grad- 
ual passing  from  agriculture  to  manufacturing.^  This 
doctrine  had  much  influence  in  Germany,  which  was  then 
rising  from  stagnation,  and  its  application  there  in  pro- 
tective laws  has  doubtless  been  successful,  under  a 
fatherly  monarchial  government,  and  with  a  people 
quietly  obedient,  given  to  patiently  making  the  best  of 
things,  and  to  enduring  much  from  the  government  with- 
out effort  to  control  it  in  their  own  interest. 

Did  Protection  Make  Germany  ?  —  But  in  view  of  the 
sturdy  energy  and  frugality  of  the  Germans,  it  is  difficult 
to  believe  that  they  would  not  have  done  as  well  or 
better  without  protection,  not  making  any  trades  at  a  loss, 
and  getting  in  cheap  food  from  abroad  more  than  the 
pitifully  stinted  meals  that  many  millions  of  them  have 
had  to  put  up  with.  In  America,  as  stated  repeatedly, 
List's  theory  involves  prolonged  loss  and  injustice,  by 
reason  of  the  readiness  of  favored  interests  to  turn  the 
government  to  their  own  private  benefit.     People  such 

1  Ingram,  389. 


The  Argiwicnts  for  Protection.  339 

as  ours  clearly  make  the  most  of  themselves  and  their 
resources  when  the  government  provides  simply  informa- 
tion and  good  order,  allowing  self-interest  to  direct  in- 
dustry. 

Where  People  Will  Bear  Much,  loyally  taking  burdens 
as  benefits,  protection  makes  its  best  apparent  showing 
(not  considering  America,  which  is  so  rich  and  strong 
that  her  burden  of  protection  is  light).  Under  Bismarck 
in  Germany,  or  M.  de  Witte  in  Russia,  the  building  up 
of  great  industries  by  protection  is  viewed  as  a  glorious 
achievement,  without  a  thought  of  the  masses,  doomed 
by  the  high  prices  of  protection,  and  by  the  support  of 
millions  of  soldiers  and  officials  from  the  annual  product, 
to  a  living  that  would  be  distressingly  coarse  and  scanty 
in  the  poorest  American  state.  In  fact,  despite  many 
good  things  in  government,  people  are  viewed  there  less 
as  men,  living  for  themselves  and  families,  than  as  sol- 
diers and  workers  for  the  nation  or  the  king.  By  pro- 
tection, as  by  forced  service  and  other  taxes,  great  things 
can  be  done,  and  prosperity,  such  as  it  is,  maintained. 
Ancient  kings  built  pyramids,  and  their  empires  enjoyed 
splendor.  Counting  taxation  and  time  of  army  service, 
it  has  been  estimated  that  the  average  French  working- 
man,  with  some  important  foods  fifty  per  cent  higher 
than  in  free  trade  England,  pays  a  fifth  of  all  his  earn- 
ings to  the  government.^  While  governments  with  such 
people  as  those  of  Spain,  Russia,  and  Mexico  may  per- 
haps properly  induce  Germans  and  British  to  come  with 
their  capital  and  teach  a  few  needed  industries,  one  can 
scarcely  believe  that  extensive  European  industries  rest- 

1  Roberts,  54.  William  Pitt  pointed  out  that  taxing  "the  last  rag" 
from  the  people's  backs,  by  means  of  hidden  duties  added  to  prices,  would 
cause  no  complaint  of  the  duties,  while  a  tax  of  seven  per  cent  paid  to  the 
tax  collector  would  provoke  an  insurrection. 


340  TJie  Plain  Facts  as  to  the  Tariff. 

ing  on  protection  are  not  a  spurious  show,  supported  by 
people  already  pressed  low.  Instruction  how  to  utilize 
resources  needing  no  protection  could  hardly  fail  to 
yield  better  permanent  results/ 

Variety  in  Farming  is  emphasized  by  Professor  Patten  ^ 
as  a  good  effect  of  protection  to  manufactures.  Stating 
that  free  traders  assume  that  land  and  labor  are  best 
used  for  a  single  product,  to  be  exported,  he  says  that 
protection,  aside  from  developing  all  the  manufacturing 
capacity  of  labor,  leads  to  utilization  of  all  land  re- 
sources, by  creating  local  demand  for  many  new  crops  ; 
that  from  these  crops  the  farmer  gets  more  profit  than 
he  could  have  realized  from  transportable  products  low- 
ered in  price  by  protection's  effect  to  weaken  demand 
abroad ;  and  that  while  checking  commerce  in  protected 
goods,  protection,  with  these  new  commodities,  produced 
at  home  and  abroad,  benefits  society  and  enlarges  total 
foreign  trade.  High  prices  for  protected  articles,  he 
says,  awaken  wants  for  new  and  cheaper  things  to  be 
produced  at  home. 

But  Having  Means  With  Which  to  Buy  (not  taken  by 
higher  prices  for  protected  necessaries)  surely  develops 
more  and  greater  wants  than  does  forced  need.  With- 
out protection,  growth  of  demand  from  increase  of  pop- 

'  Roberts'  argument  that  protection  is  wise  because  Solomon,  Csesar,  and 
Napoleon  believed  in  it,  would  apply  as  well  to  the  common  ancient  cus- 
tom of  conquering  and  forcing  tribute  money  and  slaves  from  weaker 
peoples.  To  a  large  extent  the  Continental  powers,  following  old  ideals  of 
the  state,  still  rule  in  the  ancient  way  their  patiently  patriotic  subjects,  who 
however,  in  present  unrest,  are  realizing  somewhat  their  unnecessary  bur- 
dens. After  the  field  in  which  to  levy  tribute  on  strangers  had  been  worked 
out,  support  of  royalty  and  privilege,  which  must  always  rest  on  labor  some- 
where, became  more  of  a  "home  industry."  The  present  ruling  classes 
mean  well  of  course,  but  so  did  those  of  ancient  times. 

8  Chapter  IV. 


The  Arguments  for  Protection.  34 1 

ulation,  growth  of  capital  and  experience,  and  use  of 
every  nation's  improved  methods,  bring  quickly  among 
intelligent  people  all  the  variety  of  farming  that  can  be 
made  to  pay,  as  well  as  all  such  manufacturing.  Free 
trade  lets  the  natural  profit  decide  whether  a  farmer  shall 
raise  one  crop  or  a  dozen.  In  late  years  most  of  our 
farm  crops  of  consequence  have  been  largely  shipped 
abroad,  including  a  variety  of  minor  commodities,  but 
because  of  naturally  developing  demand,  and  in  spite  of 
our  protection's  weakening  of  foreign  ability  to  buy. 

"The  North  Would  be  as  Poor  as  the  South,  and  its 
cities  as  small,  if  the  land  of  the  North  were  used  for 
wheat  as  that  of  the  South  is  used  for  cotton.  Had  our 
whole  nation  followed  the  lines  of  relative  advantage, 
advocated  by  free  traders,  our  country  would  be  divided 
into  three  parallel  belts,  used  for  cotton,  tobacco,  and 
wheat."  ^  The  change  from  raising  wheat  to  producing 
butter  and  small  crops,  it  is  hardly  necessary  to  say,  did 
not  cause  the  North's  growth  to  half  the  extent  that  this 
growth  caused  the  change  of  farming,  by  affording  new 
demand  and  altering  relative  advantage.  Cultivation  of 
one  crop  in  the  South  was  due  to  slave  labor  unsuitable 
for  other  crops,  to  exceptional  demand  for  cotton  and 
tobacco,  and  to  the  influence  of  slavery  in  preventing 
development  of  varied  industry  and  local  demand.  To 
follow  relative  advantage,  whatever  old-time  free  traders 
may  have  seemed  to  teach,  is  not  to  be  bound  to  certain 
staples,  but  to  use  land  and  labor  each  year  so  as  to  get 
most  profit,  changing  to  new  crops  or  not,  as  demand 
may  lead.  Intelligent  farmers  in  the  North  have  always 
done  this,  whether  the  demand  they  gain  from  be  local, 
inter-state,  or  foreign  ;  and  to  get  money  they  do  not 

1  Patten,  87. 


34^  T^J^^  F'lciiii  Facts  as  to  the  Tariff. 

sell  their  land  fertility  in  exhausting  crops,  for  the  same 
reason  that  they  do  not  sell  boards  from  off  their  houses. 

Is  a  Profitable  Crop  a  Misfortune?  —  It  is  said^  that  if 
a  blight  upon  the  grape  vine  should  force  the  people  of 
Portugal  to  cultivate  a  variety  of  crops,  it  would  be  a 
national  gain.  But  would  not  a  good  income  from  suc- 
cessful grape  culture  be  a  better  preparation  for  raising 
other  crops  than  failure  and  poverty  ?  With  such  sup- 
port, a  people  sufficiently  intelligent  could  have  time  and 
means  for  learning  new  kinds  of  farming  on  a  part  of 
their  land,  so  far  as  markets  could  be  found  or  made.  If 
too  ignorant  they  would  be  in  a  position  to  acquire  intelli- 
gence when  awakened  to  its  importance.  It  is  not  the 
necessity  of  poverty  that  leads  people  to  rise,  but  the 
encouragement  of  such  an  income  as  will  permit  some 
saving  of  capital. 

Trade  with  Inferior  Peoples.  —  It  is  also  said  ^  that  the 
advantage  to  America  of  trade  with  Cuba  has  been  due 
to  her  disorder,  with  Italy  to  her  ignorance,  and  with 
Turkey  to  her  oppression,  inasmuch  as  by  these  evils 
they  are  kept  producing  a  few  things  we  get  at  a  profit ; 
that  "  a  sound  national  poHcy  must  cut  off  these  sources 
of  profit  to  individuals,  and  make  it  for  their  interest  to 
cooperate  for  the  good  of  the  whole."  The  claim  is  that 
if  by  protection  (always  to  be  continued,  because  more 
progress  is  always  possible)  each  of  two  countries  led  its 
people  to  develop  themselves  and  all  their  resources  to 
the  utmost,  they  would  not  exchange  commodities  which 
one  could  produce  merely  better  than  the  other,  but  only 
such  as  one  produced  and  the  other  could  not ;  and  that 
both  the  superior  and  the  inferior  nation  would  tend  to 

1  Patten,  88. 

2  Patten,  92. 


The  Arguments  for  Protection.  343 

become  civilized  to  the  highest  degree,  rendering  each 
other  the  maximum  benefit,  as  do  families  of  enlightened 
neighbors. 

An  Idea  More  Theoretical  Than  This — further  removed 
from  the  practical  —  could  not  well  be  imagined.  What 
the  world  knows  it  learned  from  trade.  If  there  is  gain, 
near  or  remote,  to  an  enlightened  people  in  developing 
neglected  resources,  they  can  be  induced  to  see  it  with- 
out being  forced  to  it  by  cutting  off  outside  supplies ; 
while  to  enable  an  inferior  people  to  rise,  the  main  es- 
sentials are  civilized  goods  and  ideas  from  abroad.  By 
these  Japan  has  been  lifted  up  marvelously.  Cuba  and 
the  Philippines  will  not  be  doomed  by  isolation  to  sink 
lower ;  but  Americans  of  enterprise  and  capital,  under 
proper  restraint  of  law,  will  enrich  both  themselves  and 
the  natives  by  production  and  trade,  while  benefiting 
consumers  everywhere  with  additional  supplies  from 
those  lands. 

Let  the  Nation  Teach,  Not  Help  With  Money.  —  In  some 
particulars  Professor  Patten's  book  would  be  sound  and 
useful  if  the  active  policy  he  recommends  were  made  to 
include,  not  protection,  but  general  education,  and  the 
various  methods  by  which  our  nation  and  states  supply 
industrial  information.  The  departments  of  agriculture, 
gathering  and  testing  plants  and  fruits,  and  studying  ani- 
mal diseases,  aim  to  give  farmers  the  knowledge  they 
need  most  as  to  products  and  markets.  The  geological 
surveys  promote  development  of  mineral  wealth.  The 
consuls  report  openings  abroad  for  American  products, 
and  send  any  information  useful  in  trade.  People  not 
sufficiently  enterprising  to  appreciate  practical  service  of 
this  kind  are  surely  unfit  to  have  their  profits  guaranteed 
at  public  expense.     Not  only  as  it  is,  a  faulty  human  in- 


344  '^^''^  Plain  Facts  as  to  the  Tariff. 

stitution,  but  even  if  the  government  were  supernaturally 
wise  and  pure,  knowing  the  end  from  the  beginning,  and 
infinitely  above  favoring  some  at  the  unjust  expense  of 
others,  it  could  not  find  another  way  so  good  as  this  to 
draw  out  the  capacity  of  its  people,  and  to  utilize  its 
resources.  When  thus  led  to  the  water  they  will  drink 
if  it  is  good  for  them  ;  and  industries  will  not  be  induced, 
largely  without  personal  fault,  to  fasten  themselves  upon 
society  as  parasites. 

One  Nation  Gains  Most  from  the  Exchange,  it  has  been 
asserted  against  free  trade  —  a  notion  appearing  in 
speeches  of  Bismarck.  When  gains  are  unequal  there  is 
no  lack  of  remedies.  The  people  gaining  least  must 
turn  to  producing  the  most  profitable  things  they  can. 
If  the  government's  agricultural  and  mineral  departments 
prove  to  them  which  products  can  be  made  most  profit- 
able, any  people  capable  of  changing  occupation  will  turn 
to  them,  without  receiving  a  public  tax  for  doing  so. 
Leaving  the  way  open  for  the  world  to  bid  for  their  prod- 
ucts, new  or  old,  will  secure  to  them  the  largest  total 
values,  both  in  money  and  commodities.  On  the  other 
hand,  the  people  gaining  most  will  soon  have  their  profits 
cut  down,  by  larger  production  among  themselves  or  in 
other  nations,  lowering  their  prices,  and  thus  giving  more 
of  their  goods  in  exchange  for  those  of  the  people  gain- 
ing least.  In  the  present  knowledge  of  world  prices, 
gains  soon  drop  to  the  minimum  everywhere.  In  differ- 
ent nations,  as  in  different  local  towns,  each  can  only 
use  his  labor  and  capital  so  as  to  bring  most  value. 
Intelligence  is  all  he  needs,  and  all  he  can  use  with- 
out harming  others.  Did  not  nature  arrange  this  very 
well? 

The  Nation  Tinder  Greatest  Necessity  to  Trade,  which 


The  Arguments  for  Protection.  345 

it  is  said  must  take  little  and  offer  much,^  is  not  the  back- 
ward agricultural  nation,  deemed  to  need  help  from  pro- 
tection. In  the  case  of  farmers  with  means,  the  difficulty- 
is  to  induce  them  to  want  and  to  buy.  With  South 
Americans  and  Chinese,  there  is  also  the  difficulty  of  in- 
ducing them  to  produce  something  to  buy  with.  It  is 
the  manufacturing  British,  the  Belgians,  or  the  New 
Englanders,  that  are  under  greatest  necessity  to  trade,  in 
order  to  get  food  and  raw  materials.  Their  millions 
would  soon  starve  if  trade  stopped,  while  farming  people 
everywhere  would  at  once  adjust  themselves  to  home- 
spun as  Southerners  did  during  the  war.  Where  trade 
is  not  penned  in,  no  people  have  a  local  price  of  their  own, 
to  be  lowered  to  induce  a  skipper  in  port  to  part  with  his 
fabrics.  Continual  trade  adjusts  prices  on  everything 
everywhere  to  the  world's  supply  and  demand,  with  good 
allowances  against  obstruction  in  communities  shut  to 
themselves  by  protection.  The  manufacturing  people 
also  are  first  concerned  as  to  the  freight  on  bulky  raw 
materials,  not  their  producers.  The  fact  that  the  latter 
often  need  to  be  educated  up  to  the  trading  stage  leads 
on  to  the  other  fact  that  the  freer  and  wider  their  trade 
opportunities  the  more  they  will  get  for  their  raw  mate- 
rials, and  the  quicker  they  will  learn  to  manufacture 
healthfully  for  themselves.^ 

'Bowen,  485. 

2  Will  an  Industry  Ever  Be  Ready  to  Give  Up  Protection  ?— The 

free  trader  John  Stuart  Mill's  oft-quoted  admission  that  as  a  country's 
advantage  in  manufacturing  may  arise  solely  from  an  earlier  start,  another 
country  may  sometimes  get  industries  most  easily  by  means  of  temporary 
protection  —  was  objected  to  by  Professor  Rogers  in  1S78  (page  755)  on  the 
ground  that  the  only  case  in  history  of  protected  industries  becoming  full 
grown,  and  desiring  free  trade,  was  that  of  England  in  1846,  after  such  a 
revolutionary  change  by  improved  machinery  as  can  not  again  be  expected. 
He  reasoned  that  normally,  as  industries  tend  to  lean  on  protection  and  not 


34^  The  Plaui  Facts  as  to  the  Tariff. 

The  Foreigner  Pays  the  Tax,  it  is  true,  when  by  reason 
of  home  supply  price  does  not  rise  materially,  and  im- 
porting continues.  Then,  to  sell  an  article  with  the  duty 
paid,  less  must  be  accepted  for  it  by  the  foreign  pro- 
ducer. This  is  sometimes  the  case  with  products  easily 
brought  in,  the  cost  of  which  is  not  accurately  known. 
Canadians  across  the  river  doubtless  continued  to  sell 
eggs  in  Detroit,  at  about  the  same  price,  after  the  levy 
of  the  duty  of  five  cents  a  dozen.  Until  they  could  find 
a  market  in  Canadian  cities,  or  dispose  of  some  of  their 
poultry,  paying  the  duty  was  the  same  to  them  as  bear- 
ing at  different  times  previously  a  fall  of  five  cents  in 
price.  The  case  was  the  same  in  1890  with  Bermuda 
vegetables. 

It  May  be  Borne  by  a  Monopolist. — The  foreigner  may 
likewise  pay  all  or  a  part  of  the  duty  on  raw  materials, 

improve,  protected  industries  will  never  catch  up  with  foreign  competitors 
not  liaving  or  needing  artificial  aid. 

Our  Resources  Will  Deliver  Us,  however,  it  is  to  be  hoped.  "While 
protected  producers  may  find  it  easier  to  influence  Congress  for  special 
favors  than  to  work  out  improvements,  the  ability,  ambition,  and  resources 
of  leading  American  producers,  already  placing  them  foremost,  will  prob- 
ably lead  them  eventually,  as  explained  in  the  preceding  chapter,  to  join 
with  consumers  to  establish  low  duties  or  free  trade.  At  present  the 
demand  for  reciprocity  comes  from  makers  of  farm  machinery  or  other 
articles  whose  superiority  has  always  made  protection  useless  to  them  ;  but 
inability  of  foreigners  to  buy  with  money,  and  need  for  raw  materials,  may 
soon  weaken  protective  sentiment,  hitherto  strong,  among  foremost  pro- 
ducers needing  a  market  for  various  other  kinds  of  manufactures.  The  solid 
energy  and  capacity  of  German  manufacturers  has  now  enabled  many  of  them 
to  compete  with  the  world,  and  they,  somewhat  as  the  British  did  in  1846, 
are  now  demanding  free  admission  of  foreign  food.  These  may  be  cases 
in  which  industry  advanced  in  spite  of  protection,  not  depending  on  its 
"  coddling."  Americans  from  the  start,  and  Germans  after  their  awaken- 
ing in  1870,  would  undoubtedly  have  been  great  manufacturers  without  pro- 
tection. And  very  likely,  as  Professor  Rogers  thought,  industries  started 
artificially  by  protection  in  such  countries  as  Russia  and  Spain  will  not  be 
able  to  compete  with  the  world  within  two  centuries. 


The  Arguments  for  Protection.  347 

already  on  hand  to  be  shipped  in,  or  produced,  Hke 
Canadian  lumber,  from  Hmited  supply  with  monopolistic 
profit.  So  little  of  the  lumber  used  was  shipped  from 
Canada  that  in  1897  her  portion  was  not  needed  at  a 
price  fully  $2  higher.  Articles  patented,  or  made  by  a 
monopoly  trust,  are  often  sold  at  lower  profit  abroad 
than  at  home,  sometimes  bearing  a  foreign  duty,  and 
sometimes  lowered  in  price  because  the  foreigners,  too 
poor  to  pay  more,  would  not  otherwise  buy. 

A  New  Duty  Lowers  Price  Abroad  on  any  commodity 
until  foreign  producers  can  sell  their  surplus  stock,  find 
new  markets  or  lessen  their  output.  In  doing  this  they 
may  lower  price  to  cost  or  below,  and  bear  thus  a  large 
part  of  our  tariff  tax,  to  induce  us  to  continue  buying. 
Doubtless  in  times  past,  when  the  British  were  alone  in 
many  industries,  often  reaping  high  profits,  they  bore  for 
years  in  some  cases  a  part  of  our  tax,  as  a  dealer  some- 
times supplies  a  customer  at  a  cut  price.  Very  likely 
the  difficulty  of  selling  abroad  against  tariffs  hastened 
British  steel  rail  makers,  and  other  manufacturers,  into 
devising  improvements  to  lower  cost  of  their  products,  and 
into  accepting  lower  rates  of  profit  in  order  to  sell  more 
goods.  Sometimes  miscalculation  of  this  and  other 
difficulties  brought  depression  and  lower  wages,  as  in 
America,  but  only  temporarily,  for  British  wages  have 
risen  steadily.^ 

■  Various  Cases  in  which  the  Foreigner  Pays  the  Tax. — Stebbins, 
page  49,  gives  complaints  of  individual  British  manufacturers  as  to  dullness 
of  trade  and  necessity  of  cutting  prices  to  sell  abroad  against  tariffs.  These 
and  the  above  facts  would  serve  as  a  free  trade  argument  for  America,  show- 
ing how  it  puts  producers  on  their  merits,  and  leads  them,  like  free  com- 
petition in  any  case,  to  the  utmost  of  improvement  and  value  giving. 
Consumers  bear  the  tax,  not  only  in  what  is  added  to  price,  but  largely  by 
doing  without  the  article  because  too  expensive.      (See  page  113.) 

Efforts  to  Shift  the  Tax  on   to  Others. — Roberts,   page  149,  says 


34^  T^f^^  Plcii7i  Facts  as  to  the  Tariff. 

But  These  Are  Exceptions,  not  now  important,  to  the 
rule  that  when  regular  importing  continues  most  or  all 
the  duty  is  added  to  price,  and  falls  on  the  consumer. 
In  fact,  a  little  more  than  the  duty  is  usually  added,  be- 
cause the  duty  necessitates  the  use  of  more  capital  by 
merchants.  Sometimes  price  rises  as  soon  as  the  tariff 
law  is  passed,  six  months  before  it  takes  effect.  So  it 
was  in  recent  changes  of  duty  on  sugar  and  tin-plate. 
Mere  proposal  of  British  grain  duties  of  only  about  6 
per  cent  in  1902,  raised  prices  at  once.  The  greater  the 
competition,  the  lower  the  profit  in  the  old  price,  and 
the  quicker  the  rise.  Prices  of  bread  fixed  by  custom, 
and  not  easily  raised  in  money,  may  be  raised  by  using 
less  flour,  or  are  not  changed  when  price  of  flour  falls. 
Profits  of  European  manufacturers  have  long  been  low, 
and  their  competition  sharp.  The  statesman  quoted 
further  on  said  "  there  is  hardly  a  spot  on  the  globe 
where  three  generations  of  Englishmen,  Frenchmen,  and 
Germans  have  not  been  camped  in  every  avenue  of 
trade."     If  that  is  the  case  their  prices  and  profits  must 

the  foreign  manufacturer,  the  American  importer,  and  the  retailer  each  tries 
to  shift  the  tariff  tax  on  to  his  customer,  but  that  making  or  buying  too 
large  a  stock  usually  forces  each  to  sell  for  what  he  can  get,  and  thus 
mainly  relieves  the  consumer  of  a  tariff  addition  to  price.  This  can  scarcely 
be  true  of  other  than  seasonable  novelties,  sold  first  at  a  price  high  enough 
to  bear  large  reductions,  and  not  of  these  with  the  great  stocks  of  imports, 
which  are  bought  by  importers  in  the  foreign  producing  centers  at  the  prices 
there  prevailing  for  all  buyers,  home  or  foreign.  In  foreign  as  in  home 
retail  trade,  a  small  fraction  of  business  is  done  at  slaughter  prices,  and  the 
seller's  loss  here  is  well  balanced  by  a  slight  addition  to  regular  prices 
to  cover  such  contingencies.  Yet  foreign  producers  of  special  products, 
with  agencies  in  America,  lower  or  raise  price  according  to  what  the  trade 
here  and  their  usual  profit  will  bear  ;  and  in  times  past,  before  wholesalers 
in  each  land  watched  the  world  for  bargains,  producers  often  sacrificed  a 
sur])lus  abroad,  to  save  home  prices,  as  town  merchants  now  send  a  bank- 
rupt stock  to  country  villages. 


The  Arguments  for  Protection.  349 

be  down  to  bed  rock  —  too  low  to  admit  of  permanent 
reduction  to  share  the  duty.  American  producers  doubt- 
less pay  a  part  of  the  German  duty  when  they  sell  there 
at  lower  profit  than  at  home.  The  American  nation 
pays  a  part  of  the  foreign  tariff  when  the  duty  collected 
on  leather  or  hides  imported  is  refunded  in  a  drawback 
to  the  person  exporting  manufactures  made  from  the  same 
materials  (to  enable  him  to  sell  abroad).^ 

Protection  in  a  Large  Country.  — The  larger  a  country, 
and  the  more  varied  its  resources,  the  less  harmful  pro- 
tection may  be  in  one  respect,  because  such  a  land  is  a 
small  world  in  breadth  of  market  and  in  number  of 
competitors.  Yet  here  as  elsewhere  protection  brings 
loss  when  it  prevents  a  profitable  exchange  for  a  foreign 
commodity.  Every  person  who  would  use  this  commod- 
ity then  gets  to  consume  less  value  from  his  labor  and 
capital.  But  in  another  respect  protection  is  more  harm- 
ful in  a  large  country.  If  its  varied  resources  might  be 
forced  to  produce  every  article  used,  and  every  industry 
needing  aid  were  fully  protected,  the  tariff  advantage  to 
each  producer  would  be  offset,  not  only  by  higher  cost 
of  many  or  most  consumable  goods,  but  also  by  higher 
cost  of  the  materials  used  in  his  business.  Then  every 
article  not  produced  so  easily  as  to  be  beyond  protection 
would  be  valuable  by  reason  of  scarcity.    Nothing  could 

1  Bowen,  p.  487,  seemed  to  teach  that  checking  imports  with  a  tariff 
lowers  the  foreigner's  price  for  them,  and  raises  the  price  of  our  exports. 
This  is  as  attractive  as  trebling  the  value  of  men's  work  by  getting  them 
away  from  farms.  Yet  by  refusing  to  buy  what  he  wants,  and  refusing  to 
sell  what  he  does  not  want,  a  person  might  thus  affect  prices  for  the  moment 
until  the  other  party  went  elsewhere  to  trade.  The  idea  perhaps  was  that 
Europe  had  to  buy  of  us  or  go  with  scanty  food.  That  is  less  the  case 
now,  as  farmers  have  learned  to  their  sorrow.  The  statement  of  Bowen 
that  not  over  half  the  duty  can  be  added  to  price  presupposed  large  pre- 
vious gains  to  the  foreigner. 


350  The  Plain  Facts  as  to  the  Tariff. 

be  shipped  in,  and  supplies  to  consume  would  be  largely 
reduced.^ 

A  Small  Country,  on  the  contrary,  would  not  have 
many  different  commodities  to  protect.  The  others  could 
be  traded  for  wherever  most  of  them  would  be  given. 
It  is  because  so  few  things  have  been  protected  in 
America  that  protection  has  caused  so  little  harm.  Its 
burden  has  been  spread  upon  no  less  than  eight-ninths 
of  the  people,  engaged  in  unprotected  industries,  such 
as  must  be  carried  on  here,  or  yield  larger  product  than 
abroad.  Abundant  product  from  rich  resources  has 
enabled  them  to  bear  easily  the  burden  of  higher  prices 
for  protected  goods.^ 

1  Effect  of  Monopolizing  All  Products. — Organizing  every  kind  of 
labor  and  production  into  trusts  would  have  tlie  same  effect,  though  worse, 
making  everything  scarce.  Only  by  diminishing  the  supply  of  its  product 
can  a  trust  sell  it  all  at  a  higher  price.  The  higher  the  price  the  smaller 
the  sales.  To  make  a  monopoly  profitable  to  its  owners,  giving  their 
money  income  large  pmchasing  power,  many  commodities  must  remain  un- 
monopolized  and  plentiful. 

Professor  Patten's  Theory  of  Protection  and  Monopoly,  and  of  pro- 
tecting all  manufactures  (page  40),  is  that  confinement  of  trade  at  home, 
which  raises  price  of  manufactures,  has  the  opposite  effect  to  lower  price  of 
the  natural  monopoly  products  of  mines  and  forests,  by  depriving  them  of 
foreign  markets,  and  thus  throws  the  protective  burden  from  labor  to  mon- 
opoly incomes.  This  of  course  has  not  been  so  in  America,  for  these  mon- 
opoly products  have  been  the  main  ones  protected,  shutting  out  cheap 
supplies  of  them  from  abroad,  and  giving  their  owners  great  profits.  Be- 
sides, the  labor  producing  protected  manufactures  raised  in  price  is  but  a 
fraction  of  the  labor  producing  things  not  thus  to  be  raised,  but  lowered  in 
price  by  the  protective  tax's  effect  to  reduce,  both  at  home  and  abroad,  the 
people's  means  of  buying. 

2 Small  area  was  a  reason  why  in  the  Middle  Ages  the  republics  of 
Venice  and  Florence  flourished  remarkably  under  protection.  Needing 
everything  but  their  own  manufactures,  they  could  bring  home  good  trades 
from  many  lands.  Also,  like  England  up  to  twenty  years  ago,  they  had 
no  rivals  in  manufacture  and  trade.  In  ancient  times  Tyre  and  Carthage, 
having  the  accessible  world  as  a  field  to  themselves,  could  continue  for 


The  Arguments  for  Protection.  351 

Only  by  Making  Things   Scarce  Can  It  Protect.  —  If 

protection  had  been  pushed  higher  on  a  number  of 
important  imports,  such  as  sugar  and  fine  woolens,  the 
people  would  have  learned  more  of  its  true  effect  to 
make  things  scarce.  Only  thus  can  it  raise  price  and 
protect.  When  increasing  home  supply  of  an  article 
lowers  price  to  the  foreign  level,  its  protection  is  useless. 
But  so  long  as  a  duty  protects,  eighty-five  years  in  some 
American  cases,  it  has  all  the  time  made  the  article  scarce. 
No  matter  if  improved  production  has  lowered  prices  of 
American  fabrics  and  hardware  to  a  quarter  of  what 
they  were,  if  the  duty  still  protects,  and  is  desired,  the 
article  has  been  made  even  cheaper  and  more  plentiful 
abroad. 

If  Not  Good  on  Many  Things,  is  it  Good  on  Any  ?  —  It 
being  clear,  therefore,  that  people  would  not  bear  pro- 
tection on  many  things  for  the  sake  of  greater  diversity 
of  industry,  is  it  not  equally  clear  that  they  suffer  some- 
thing when  they  bear  it  on  any  thing  ?  Nature  unerringly 
tells  every  community  what  to  do.  New  England  made 
cloth  and  Pennsylvania  iron,  just  the  same  in  one  country 
as  if  they  had  been  in  two.  Whether  they  desired  or 
not,  Mississippi  had  to  choose  cotton  and  Minnesota 
wheat.  An  intelligent  people,  of  their  own  accord,  will 
trade  among  themselves,  with  no  outside  commerce,  if  it 
pays  them  to  do  so.     They  soon  find  out,  without  being 

centuries  to  exchange  their  wares  for  money  metals,  and  rare  commodities 
of  great  value. 

Sometimes,  as  in  our  present  reciprocity  discussions,  it  is  said  a  large 
country  needs  protection,  because  free  trade  with  Canada  would  give  her 
our  76,000,000  people  as  a  market,  while  we  should  get  only  her  5,000,- 
000.  It  has  been  answered  that  on  this  principle  Delaware  should  suck 
the  life  out  of  Pennsylvania.  If  a  small  country  can  buy  but  little,  it  also 
has  but  little  to  sell ;  and  whatever  it  offers,  the  larger  population  will  not 
buy  unless  they  gain  by  it. 


352  TJie  Plain  Facts  as  to  the  Tajiff. 

told  through  the  law  by  interested  parties,  how  far  to 
devote  their  labor  to  making  things,  and  to  avoid  waste 
of  effort  on  mere  merchandising.  Perhaps  Ohio  is  the 
state  having  the  greatest  variety  of  industry.  Her  people 
buy  elsewhere  her  kinds  of  goods  only  when  they  gain 
by  it.  For  the  same  reason  of  gain,  industry  may  be  con- 
fined to  one  line,  with  dependence  on  exchange  for  nearly 
all  commodities. 

Lynn  and  Lowell  Knew  What  They  Were  About  when 
the  one  chose  to  make  shoes,  the  other  cloth,  despite  the 
advice,  sometimes  good,  not  to  put  all  the  eggs  in  one 
basket.  So  did  England  when  her  people  chose  fine 
manufacturing  of  various  kinds.  To  her,  outside  trade 
is  vital,  as  with  a  city.  Falling  off  in  foreign  trade 
means  with  her  a  smaller  income  to  live  on,  unless  use 
of  her  own  product  at  home  is  increased  to  balance  the 
difference  —  not  quickly  practicable.  As  a  rule,  the 
greater  their  wealth  and  intelligence,  the  more  a  people 
depend  upon  others.  Compare  Massachusetts  with  the 
mountains  of  the  South.  If  our  internal  trade  is  twenty 
times  as  large  as  our  foreign,  does  not  nature  seem  to  be 
a  safe  enough  guide,  without  attempt  by  protection  to 
hold  the  people  in  still  closer  ?  The  incalculable  gains 
of  all  this  home  exchange,  the  basis  of  division  of  occu- 
pations, indicate  the  possible  gains  of  free  and  natural 
foreign  exchange.^ 

1  Our  Progress  Came  From  Free  Trade. — The  factories  of  New  Eng- 
land would  have  been  small  local  concerns  without  free  access  to  the  other 
states.  The  same  would  have  been  true  of  our  fields  of  wheat  and  cotton. 
The  region  west  of  the  Alleghanies,  with  higher  wages,  higher  interest  and 
less  experience,  soon  outstripped  in  production  the  Eastern  States,  against 
whose  old  industries  it  had  no  tariff,  and  whose  goods  came  to  it  with 
cheaper  and  cheaper  freights.  Richer  resources  were  the  reason.  America 
would  have  passed  Europe  in  the  same  way  without  protection  ;  and  Europe 
would  have  been  far  ahead  of  her  present  position.     Free  trade  is  just  as 


The  Arguments  for  Protection.  353 

Only  for  Gain  do  People  Turn  From  Home  Exchange. 

"  Whenever  our  citizens  are  rich  enough  to  employ 
these  great  resources,  my  hope  is  that  they  will  be  rich 
enough  to  consume  their  products  themselves."  ^  Might 
not  the  reason  of  this  hope  apply  somewhat  to  Ohio,  or 
at  least  to  the  wide  area  of  the  South  since  it  began  to 
manufacture  ?  Since  clearly  it  is  gain  that  leads  the 
different  sections  of  our  country  to  trade  with  one 
another,  is  it  anything  else  that  would  lead  them  under 
lower  tariffs  to  trade  with  Europe  ?  And  as  America 
had  from  the  start  those  kinds  of  manufacture  necessary 
for  war,  with  diversified  industry  springing  up  every- 
where as  needed,  has  not  the  effect  of  protection,  in 
unnaturally  hastening  a  development  already  rapid,  been 
outweighed  by  its  reduction  of  the  people's  income  of 
commodities  in  every  line  where  protection  protects  ? 

The  World's  Greatest  Buyers. — The  claim  that  our 
76,000,000  people  are  equal  to  half  the  world  in  buying 
capacity,  affects  the  case  only  by  enabling  them  to  pros- 
per in  spite  of  their  losses  by  protection.  No  less  are 
they  equal  to  half  the  world  in  producing  capacity,  for 
each  must  first  produce  everything  he  has  to  buy  with. 

true  in  practice  as  in  theory.  Thiers  was  a  logical  protectionist  when  he 
objected  to  railroad  building  in  France.  So  was  Carey  when  he  hoped  our 
communication  with  Europe  might  be  cut  off.  Absence  of  outside  trade 
keeps  a  mountain  district  near  barbarism.  Cheaper  transportation,  every- 
where desired,  which  has  caused  modem  civilization  by  making  trade 
easier  and  freer,  tends  to  overcome  tariff  obstructions.  This  is  a  reason 
why  higher  and  higher  protection  is  demanded.      (Shearman. ) 

1 T.  B.  Reed,  speech  in  Congress,  Feb.  1894. 

Home  Consumption  of  All  Products  would  not  now  be  mentioned  by 
protectionists  as  desirable,  since  the  recent  trebling  of  American  exports 
of  manufactures.  As  explained  at  the  close  of  the  last  chapter,  it  would 
prevent  profitable  exchange,  even  if  we  produced  every  article  cheaper 
than  any  other  nation. 

23 


354  ^^^^  Plain  Facts  as  to  the  Tariff. 

Other  nations  consume  less  because  their  overworked 
resources  yield  less.  Their  labor  is  the  same  as  ours 
when  put  to  work  on  our  resources.  Anybody  except  a 
Chinaman  is  an  American  laborer  who  happens  to  be 
working  in  the  United  States.  Is  it  not  unfortunate  that 
our  people  did  not  confine  their  work  to  the  many  things 
they  can  do  best,  and  allow  the  foreigner  to  do  for  us 
the  few  things  he  can  do  best  ? 

The  Great  Speech  of  the  Champion  Protectionist  quoted 
might  be  further  questioned,  though  its  support  of 
assertion  by  reason  was  unusual.  As  the  heavy  work 
of  the  pioneer  was  done  under  "  free  trade  tariffs,"  or 
with  a  fraction  of  the  people  protected  —  the  country 
settled,  and  resources  developed  for  the  mightiest  war 
of  all  history  —  could  our  thirty -one  millions  of  nature 
conquerors  in  i860,  a  year  of  great  low  tariff  pros- 
perity, with  their  unequalled  shipping  and  railroads,  and 
with  their  steady  inflow  of  foreign  labor  and  capital,  have 
been  expected  to  achieve  less  without  protection  than 
our  subsequent  progress  ?  Was  it  not  greater  to  build 
up  our  industrial  system  originally  than  to  reap  a  later 
success  that  was  already  assured  ? 

Wages  Being  the  Same,  is  Not  Something  Wrong?  — 
And  have  not  our  inventors  chiefly  produced  things 
unprotected  —  railroad  and  electrical  appliances,  farm 
machinery,  printing  presses,  sewing  machines,  and  type- 
writers ?  If  our  protected  industries  have  made  product- 
cheapening  inventions,  and  are  at  home  here,  why  can 
they  not,  like  the  unprotected,  offer  as  many  or  more 
goods  for  a  dollar  than  the  foreign  competitor?  Those 
producers  who  can  do  this,  whether  they  have  a  tariff" 
duty  or  not,  are  unprotected  if  by  means  of  a  trust  they 
do  not  habitually  sell   cheaper  abroad  than  at  home. 


The  Argianents  for  Protection.  355 

Wages  being  the  same  to  both  these  classes  of  home 
producers,  does  not  the  fact  that  the  smaller  class,  after 
many  years  of  protection,  are  still  unable  to  give  as  much 
value  as  the  foreigner,  prove  that  there  is  something 
wrong  with  their  industries  in  America  ?  And  is  not  the 
same  indicated  by  many  failures  of  woolen  factories, 
highly  protected,  against  rapid  growth  and  few  failures  in 
the  shoe  industry,  under  a  tariff  inoperative  ?    (Atkinson.) 


CHAPTER    XIII. 


PROTECTION    AND    WAGES. 


The  Good  Effect  of  Manufacturing  on  Prices  of  Farm 
Products,  and  on  wages,  is  not  involved  here  if  with  our 
varied  resources,  and  our  enterprising  people,  manufac- 
turing would  have  come  without  the  tariff  The  good 
effect  of  manufacturing  is  chiefly  in  teaching  people  to 
know  more,  to  produce  more,  and  to  require  the  higher 
grade  of  living  they  are  able  to  maintain.  They  then 
receive  high  wages  because  they  earn  them  ;  and  if  they 
went  where  wages  are  lowest,  they  would  earn  and  get 
more  pay  than  the  average  there.  A  large  manufactur- 
ing population  has  little  or  no  effect  on  the  price  of  a 
farm  product  heavily  exported,  like  wheat,  whose  local 
price,  aside  from  slight  variations  of  local  demand,  is 
that  of  Liverpool,  less  the  expense  of  taking  it  to  that 
city ;  nor  on  hay  or  potatoes,  not  largely  exported,  but 
shipped  from  state  to  state  ;  nor  on  ordinary  garden  prod- 
ucts where  easily  produced  or  shipped  in,  these  being  as 
cheap  at  Detroit  as  in  villages  far  removed  from  factories. 
The  high  price  of  farm  products  in  New  England  is  due 
to  factories  only  through  the  pressure  of  large  popula- 
tion on  poor  land.  Price  for  all  of  a  farm  product  bought 
must  be  high  enough  to  keep  in  business  the  grower  of 
that  part  of  the  necessary  supply  which  is  produced  at 
greatest  cost.  If  all  the  people  and  factories  of  New 
England  were  moved  to  fertile  Kansas,  enough  more 
people  would  grow  vegetables  there  to  bring  down  their 

356 


Protection  and  Wages.  357 

price  to  about  the  present  level.  In  farming  in  Kansas, 
a  business  more  people  can  easily  enter,  profits  can- 
not remain  above  the  average  in  other  occupations  for 
the  farmer's  grade  of  capacity.  Without  protection,  the 
growth  of  population,  capital,  and  intelligence,  with  in- 
creasing wants,  which  is  accompanied  by  growth  of  towns 
and  of  variety  in  occupation,  affords  naturally  all  the 
local  markets  that  can  bring  net  benefit  to  the  farmer. 
In  two-thirds  of  our  large  country,  to  pretend  to  create 
manufacturing  centers  of  local  demand  much  better  than 
would  have  come  anyhow,  would  require  state  or  county 
tariffs,  which  if  successful  would  deprive  New  England 
factories  of  their  markets.  Costs  in  transportation,  and 
in  middlemen's  profits,  we  have  in  home  trade  nearly  as 
much  as  in  foreign. 

As  to  Raising  Land  Values  also,  the  claims  of  protec- 
tionists must  now  be  given  up.  There  are  over  a  thou- 
sand farms  for  sale  in  New  England,  "  often  in  the  most 
fortunate  locations,  most  of  which  can  be  bought  for 
much  less  than  the  value  of  the  buildings.  Many  have 
wood  enough  to  pay  for  them."  '  A  Massachusetts 
report  showed  a  similar  condition  ten  years  ago.  The 
case  is  different  in  Oklahoma,  where  there  will  be  no 
factories  of  importance  for  many  years.  The  former 
value  of  New  England  land,  due  to  location  near  market, 
has  been  taken  away  by  cheap  transportation,  which  has 
given  value  to  the  more  fertile  land  of  Oklahoma. 

Protection's  Chief  Recommendation. — When  in  an  indus- 
try started  by  protection,  competition  among  home  pro- 
ducers lowers  the  price  of  its  commodity  to  the  foreign 
level,  neither  price  nor  wages  are  then  affected  by  the 
tariff.     The  home  producers  make  no  use  of  the  tariff 

^  New  England  Magazine,  August,  1 901. 


358  The  Plain  Facts  as  to  the  Tariff. 

unless  they  add  at  least  a  part  of  it  to  their  selling  price. 
With  prices  as  low,  and  qualities  as  good,  as  those  of 
their  foreign  competitors,  they  could  hold  the  home 
market  without  the  tariff's  help,  depending  on  their 
closer  acquaintance  and  on  the  foreigner's  disadvantage 
of  freight.  Why  then  should  they  still  cling  to  the 
tariff,  if  they  intended  to  keep  their  price  as  low  as  the 
foreign,  and  their  goods  as  desirable  ?  This  possible 
effect  of  a  tariff  duty,  to  build  up  a  valuable  industry 
until  its  selling  price  falls  to  the  price  abroad,  is  protec- 
tion's chief  recommendation.  If  the  period  of  infancy 
were  not  too  long,  and  the  duty  were  then  given  up 
without  too  much  opposition,  there  could  be  little  objec- 
tion to  protection.  Help  from  the  people  through  a 
higher  price  would  then  be  asked  no  longer  than  seemed 
reasonable  and  necessary. 

Wages  as  Dependent  upon  Prices.  —  The  much-talked- 
of  benefit  of  protection  in  keeping  up  wages  must  there- 
fore be  confined  to  those  industries  in  which  the  duty  is 
yet  added  to  selling  price,  enlarging  income  to  divide 
with  wage  workers.  This  benefit  would  be  only  tem- 
porary if  home  competition  under  protection  lowered 
price  so  quickly  and  so  generally  as  one  might  infer 
from  protective  arguments.  Turning  from  these  incon- 
sistencies, with  which  protective  claims  are  filled,  we  will 
suppose  that  it  was  truly  to  pay  higher  wages  that  the 
heavy  duties  justly  levied  to  raise  revenue  for  the  Civil 
War  were  afterward  raised  higher  and  higher,  especially 
by  the  McKinley  law  of  1890,  stopping  imports  alto- 
gether in  many  cases.  Let  us  then  inquire  how  it  is  that 
the  tariff  can  keep  up  wages. 

Large  Product  and  High  Wages  Always  the  Rule  in 
America.  —  First,  why  have  wages  always  been  high  in 


Protection  and  Wages.  359 

America,  compared  with  other  countries  ?  Because  in 
our  large  and  varied  resources  there  have  always  been 
opportunities  to  get  from  labor  a  valuable  product. 
Governor  Winthrop,  of  Massachusetts,  wrote  in  1645  : 
"  Our  servants  will  still  desire  freedom  to  plant  for  them- 
selves, and  not  stay  but  for  verie  great  wages."  A  New 
York  official  wrote  in  1723  :  "  Every  one  is  able  to  pro- 
cure a  piece  of  land,  and  is  therefore  fond  to  set  up  for 
himself  rather  than  work  for  hire.  This  makes  labor 
continue  very  dear,  a  common  laborer  usually  earning 
three  shillings  by  the  day.  ...  It  is  hard  to  make  any 
commodity  of  manufacture  profitable  which  can  be 
raised  in  Europe."  ^  While  money  wages  up  to  fifty 
years  ago  were  low  compared  with  those  of  to-day, 
working  people  were  plentifully  supplied  with  common 
commodities,  and  they  would  not  leave  the  farm  unless 
factory  wages  gave  them  a  living  at  least  as  good.  The 
difference  between  their  supplies,  and  those  of  laborers 
in  Europe,  was  as  great  perhaps  as  it  is  to-day. 

Before  Our  Tariff  Was  Thought  of,  therefore,  while 
British  tariffs  were  even  designed  to  keep  down  colonial 
manufacturing,  American  labor  brought  much  because 
on  our  free  and  fertile  land  it  produced  much  ;  and  as 
indicated  in  the  above  quotation,  it  was  hired  only  where 
its  product  was  worth  its  cost. 

The  Later  Rise  of  Wages. — Second,  has  the  later  rise 
of  wages  been  due  in  any  part  to  the  tariff?  Doubtless 
the  first  cotton  factory  started  by  the  tariff  in  each  com- 
munity made  servant  girls  and  laborers  scarce,  and  tended 
to  raise  their  wages  ;  but  this  effect  must  have  been  slight 
after  the  demand  brought  workers  from  other  places,  and 
was  perhaps  unnoticed  at  a  distance  from  factory  towns. 

1  Bullock,  28. 


360  T]ie  Plain  Facts  as  to  the  Tariff. 

The  protected  cotton  and  woolen  factories,  concentrated 
in  a  few  districts  and  always  hiring  cheap  help,  could  not 
have  affected  wages  over  the  country  at  large.  The  pro- 
tected iron  industries  likewise,  small  up  to  i860,  were 
concentrated  in  a  few  districts,  and  on  the  cruder  forms 
employed  mostly  cheap  labor.  All  the  people  employed 
by  these  new  industries  previously  worked  at  something 
else,  and  the  extra  money  wages  necessary  to  attract 
them  were  doubtless  not  large — not  enough  to  balance 
the  loss  of  real  wages  all  over  the  country  by  the  tariff 
addition  to  prices  of  consumable  commodities.^ 

1  Wages  Have  Risen  in  All  Countries  where  product  to  consume  has 
been  increased  by  use  of  machinery,  by  spread  of  intelligence,  and  by  ex- 
change for  cheap  supplies  from  abroad.  During  the  last  sixty  years  wages 
in  France  and  England  have  doubled,  the  one  under  protection,  the  other 
under  free  trade,  though  France  has  kept  well  behind  in  the  living  of  wage 
workers,  under  high  protective  prices.  Protection  has  checked  rise  of 
wages,  seriously  in  Europe,  measured  in  money  or  in  goods  (p.  363).  Prob- 
ably the  greatest  of  all  causes  for  the  rise  of  wages  was  the  rapid  develop- 
ment of  the  Western  States,  almost  wholly  with  unprotected  industries. 
This  took  the  surplus  labor  from  other  states  and  countries  and  gave  com- 
mercial lands  cheap  food  ;  while  the  needs  of  new  Western  railroads,  and 
of  prosperous  settlers,  increased  both  American  and  European  demand  for 
labor  in  manufacturing. 

By  the  Aldrich  Report  of  1891,  to  the  Senate,  giving  results  of  an 
elaborate  investigation,  wages  in  gold  (not  depreciated  paper)  of  22  Amer- 
ican industries,  counting  the  rate  in  i860  as  loo,  averaged  82  in  1840,  91 
in  1850,  137  in  1870,  143  in  1880,  and  168  in  1890.  In  the  fifty  years, 
therefore,  money  wages  doubled  ;  but  living  being  cheaper  in  1890,  the 
report  showed  by  ample  figures  that  real  wages,  in  commodities  consumed, 
increased  nearly  i3oper  cent.  (Levasseur,  286,  412.)  Since  1898  wages 
have  risen  materially  in  many  industries,  even  above  the  high  rates  of  1892, 
partly  by  working  fewer  hours  for  the  same  daily  pay  ;  but  to  a  large  extent 
there  may  be  a  fall  when  the  high  tide  of  business  subsides,  and  employ- 
ment will  be  less  regular.  Spahr  (first  chapter)  and  Shearman  (page 
635)  criticise  the  Aldrich  report,  saying  that  it  is  not  true  of  many  occu- 
pations. U.  S.  Labor  Bulletin  No.  18  shows  a  decline  of  wages  in  eight 
trades  between  1 881  and  1898.  But  the  general  trend  is  probably  shown 
fairly  well  in  the  Aldrich  report.     There  are  many  cases  in  which  weekly 


Protection  and  Wages.  361 

EigM-Ninths  of  Our  Workers  Unprotected. — But  the 
main  objection  to  the  assertion  (it  is  only  an  assertion — 
never  reasoned)  that  the  tariff  has  raised  American  wages, 
is  the  fact  that  among  9  equally  good  and  desired  workers 
the  wages  secured  by  8  fix  the  wages  of  the  remaining  i. 
His  must  come  to  their  rate ;  theirs  is  not  lowered  or 
raised  to  conform  to  his.  It  is  sheer  absurdity  to  suppose 
that  the  wages  of  i  can  add  from  25  to  100  per  cent  to 
the  wages  of  the  Z?  This  proportion  of  i  to  8  is  that  of 
protected  workers  in  America  to  those  in  unprotected 
industries.  The  latter  include  such  as  railroad  men  and 
house  builders,  whose  work  must  be  done  in  this  country 
(their  product  cannot  be  shipped  in),  and  producers  of 
farm  machinery  and  various  things  on  which  no  other 
country  has  ever  been  able  to  compete  with  America. 
From  the  census  of  1880  these  unprotected  workers  have 
been  estimated  to  number  then  i  5,400,000,  not  including 
half  the  farmers  and  farm  hands  in  Maine,  New  Hamp- 
shire, Vermont,  and  New  York,  as  possibly  protected  by 

wages  have  not  risen  since  1880,  but  in  some  of  these  the  day  has  been 
shortened  from  10  to  9  hours. 

'  How  Much  Higher  Than  Wages  in  England  ? — Wages  are  higher 
in  America  than  in  England  by  varying  degrees.  London  printers  get  38 
shillings  a  week  (;^9.25),  against  ^18  paid  to  printers  in  Chicago,  working 
time  now  about  54  hours  in  each  city.  The  difference  is  similarly  large  in 
a  number  of  skilled  trades.  But  English  farm  hands  get  fully  as  high 
wages  as  are  paid  in  the  Southern  States,  and  many  other  laborers  and 
factory  workers  earn  nearly  as  much  money  per  hour  or  per  year  as  the 
same  grades  earn  in  America.  Printers  in  the  smaller  American  cities,  at 
^7  to  $\2  per  week,  probably  receive  far  less  than  double  the  wages  of 
printers  in  the  smaller  British  cities.  Moreover,  it  is  well  known  that 
highly  paid  men  in  America,  to  hold  their  positions,  must  work  faster  and 
do  more  than  British  workmen.  A  New  England  manufacturer  in  Russia 
found  by  experience  that  ten  men  there  were  required  to  do  the  work  of 
five  in  America.  (Levasseur,  333.)  Professor  Roscher,  of  Leipsic,  told 
Dr.  Spahr  of  men  who  had  returned  to  Germany  to  escape  the  fast  work 
of  America. 


362  The  Plain  Facts  as  to  the  Tariff. 

the  tariff  from  Canadian  competition.  Against  this  host 
the  protected  workers  were  found  to  number  only  1,990,- 
000,  including  the  many  thousands  employed  by  steel 
mills,  locomotive  works,  and  other  protected  concerns 
that  are  now  able  to  compete  with  the  world  without  a 
tariff.i 

Yet  May  K"ot  the  Tariff  Have  Increased  Demand  for 
Labor  and  raised  wages  somewhat,  not  only  by  providing 
new  kinds  of  employment,  but  also  by  making  a  need 
for  new  buildings  and  railroads,  and  indirectly  for  vari- 
ous materials  ?  Yes,  a  new  tariff  causes  many  factories 
to  be  built  suddenly  ;  but  this  employment  for  the  build- 
ing trades  is  temporary,  while  the  capital  and  labor  are 
used  to  duplicate  foreign  plants  already  sufficient  to  sup- 
ply the  world's  demand.  Presumably  this  capital,  and 
the  labor  both  of  builders  and  of  operatives,  are  diverted 
from  other  production  needed  at  a  price  high  enough 
without  a  tariff — yielding  natural  values  to  the  full  amount 
of  the  higher  price.  New  factories  built  under  other  con- 
ditions are  demanded  to  increase  or  improve  supply. 
Needless  duplication  of  plants,  at  home  or  abroad,  to  re- 
duce plants  elsewhere  to  idleness,  is  a  waste  of  society's 
capital.  Benefits  enjoyed  from  society's  capital  abroad, 
in  good  supplies  at  low  prices,  are  just  as  real  as  if  they 
originated  with  society  at  home.  The  purpose  of  capital 
is  to  increase  supplies  and  lower  their  prices.  At  best, 
people  are  none  too  well  supplied  with  useful  things. 

Proper  Industries  Come  When  They  are  Needed. — Be- 
sides, as  those  industries  suited  to  the  country  and  people 
have  always  come  anyhow  in  America  when  the  need  for 
them  appeared,  the  new  buildings  and  railroads  required 
by  them  would  have  come  too.     The  process  being  nat- 

'  Bullock,  360. 


Protection  and  Wages.  363 

ural,  labor  and  capital  would  not  have  turned  from  an 
old  industry  until  the  new  was  needed  more.  Hastening 
the  change  by  a  tariff,  taxes  consumers  with  a  higher 
price,  and  wastes  our  heritage  by  using  it  from  year  to 
year  with  a  smaller  return  in  natural  or  unprotected  value. 
The  wealth-producing  power  of  present  labor  and  capital 
is  a  more  important  part  of  that  heritage  than  raw  ma- 
terials to  be  forced  into  development  by  protection. 
Unused  materials  will  usually  keep,  and  become  valuable 
in  time  ;  but  every  day  in  which  labor  and  capital  are 
spent  for  a  less  return,  when  a  greater  is  in  reach,  brings 
a  loss  never  to  be  recovered.  People  know  what  they 
are  doing  when  they  pay  a  man  $6.00  for  a  week's  work 
instead  of  buying  well  timbered  land  in  the  north  woods 
at  the  same  price  per  acre.  At  most,  protection  can 
only  cause  an  industry  to  come  sooner — too  often,  no 
doubt,  with  abortive  results.  It  creates  no  means  of 
permanent  self-support.  These  were  fixed  by  nature,  in 
soil,  mines,  and  forests.  Therefore,  demand  for  labor,  and 
higher  general  wages,  either  in  money  or  in  goods  en- 
joyed, have  not  been  caused  by  protection  to  any  per- 
manent or  healthy  extent.  But  in  the  aggregate  it 
diminishes  employment,  as  well  as  the  buying  power  of 
money  wages.  Where  the  tariff  enables  a  trust  to  keep 
up  prices  by  limiting  output,  fewer  workmen  are  needed. 
In  every  case  where  the  tariff  raises  the  price  of  an  article, 
its  consumption  is  diminished,  and  employment  also, 
whether  in  making  the  article  itself,  or  in  making  other 
goods  to  be  exchanged  for  it  abroad.  People  imagine 
that  protection  makes  work  and  business  because  its 
effects  in  that  respect  are  seen.  They  do  not  notice  that 
it  causes  a  largely  overbalancing  loss,  lessening  the  total 
and  the  rate  of  wages,  and  also  the  goods  they  buy. 


364  '^The  Plain  Facts  as  to  the  Tariff. 

Protection  Has  Weakened  Labor  Demand  by  Bringing 
in  Foreigners. — But  undoubtedly  protection  has  seriously 
weakened  general  labor  demand  by  adding  to  labor 
supply  —  by  providing  quickly  a  variety  of  low  grade 
employment  to  foreigners  who  would  not  otherwise  have 
come.  In  the  protected  cotton  mills  of  New  England 
foreign  labor  has  long  predominated.  The  native  opera- 
tives of  earlier  times,  noted  for  industry  and  intelligence, 
left  them  because  the  wages  were  too  low,  finding  better 
pay  in  other  work.  Many  of  the  Irish  who  took  their 
places  found  in  time  better  wages  also,  giving  way  to 
French  Canadians,  and  later  a  still  lower  grade  of  Arme- 
nians and  Greeks  have  come  to  work  in  the  mills.  For- 
eign laborers  —  Hungarians,  Poles,  and  Italians  —  have 
come  (or  have  been  brought)  in  largest  numbers  to  the 
protected  iron  and  coal  industries  of  Pennsylvania,  al- 
most completely  foreignizing  large  communities,  in  lan- 
guage, religion,  and  customs  —  a  depressing  change  to 
Americans  there.^  Undoubtedly,  fewer  of  these  lower 
grades  of  workmen  would  have  come  at  all  if  protection 
had  not  given  a  hot-house  growth  to  the  industries  that 
welcomed  them,  and  that  could  not  have  hired  such  cheap 
labor  among  native  Americans, 

The  Contract  Labor  Law  of  1885,  against  hiring  per- 
sons abroad,  was  enacted  to  prevent  employers  from 
lowering  wages  by  bringing  in  an  over-supply  of  laborers 
from  Europe.  But  there  is  no  need  to  send  after  them. 
New  York  is  probably  a  better  place  than  any  city  in 
Europe  to  hire  cheap  labor.  In  1901  the  Italian  immi- 
grants numbered  136,000,  the  Austro-Hungarians  113,- 

^  The  Forum,  Sept.  1892.  Out  of  each  1, 000  immigrants  that  came 
between  1890  and  I901,  no  less  than  801  have  settled  in  Pennsylvania  and 
the  Northeast. 


Protection  and  Wages.  365 

000,  and  the  Russians  85,000,  with  only  21,000  Ger- 
mans. The  tarifir  has  not  protected  working  people 
from  the  wage-lowering  competition  of  a  flood  of  immi- 
grants, to  say  nothing  of  the  change  for  the  worse  in  the 
country's  population.  But  the  main  fact  is  yet  to  be 
told.  From  1864  to  1884  a  law  of  Congress  was  in 
force  that  gave  importers  of  immigrants  a  lien  on  their 
wages  and  land  for  money  advanced  to  them,  and  that 
enforced  contracts  made  with  them  abroad.  Great  num- 
bers of  people  were  thus  brought  to  America.  Henry 
Carey  pointed  to  increase  of  immigration  as  a  benefit  of 
protection.^ 

The  American  Employer  Can  Get  Cheap  European  Labor 
if  he  wants  it.  These  immigrants  arriving  at  New  York 
are  all  out  of  work,  if  the  contract  law  is  obeyed,  though 
men  who  should  know  say  it  is  largely  evaded,  and  could 
probably  be  hired  at  first  for  the  same  wages  they  received 
at  home.  Before  the  enactment  of  this  contract  law  they 
would  gladly  have  come  over  in  ship-loads  at  their  home 
wages  (and  doubtless  did  so  come)  if  their  passage  money 
had  been  advanced.  Why  would  they  soon  demand 
more  pay  ?  Because  their  employer  is  enabled  by  a  pro- 
tective tariff  to  sell  at  a  high  price,  and  hence  could 
afford  to  give  more  ?  No.  His  profits  are  unknown  to 
them.  They  demand  and  get  more  because  more  is  paid 
all  around  them  for  their  grade  of  work  in  unprotected 
occupations  —  in  building  trades,  common  labor,  and 
house  service. 

High  Wages  Must  be  Paid  in  Order  to  Run  at  All.  — 
Any  manufacturer  running  at  a  loss  must  pay  his  men 
as  much  as  they  can  get  from  others.  If  he  is  rapidly 
making  a  fortune  he  need  not  pay  more.     If  he  does  pay 

1  Shearman,  634- 


366  TJie  Plain  Facts  as  to  the  Tariff. 

more,  it  is  to  get  better  workers,  who  also  receive  more 
in  unprotected  industries.  Extra  pay  is  given  willingly, 
because  they  earn  it.  The  fact  that  he  needs  a  protective 
addition  to  selling  price  is  proof  that  his  business  is  dif- 
ferent from  the  kinds  of  business  all  around,  which  make 
the  rate  of  wages,  and  yield  plenty  to  pay  it.  Either  he 
is  incompetent  to  cany  on  the  enterprise,  or  it  is  out  of 
place  in  this  country,  like  a  lemon  tree  under  glass  in  a 
park. 

But  Does  Not  Protection  Help  Wages  by  Maintaining 
Industries  that  could  not  exist  without  it,  and  whose 
capital  and  labor  could  not  otherwise  find  equally  prof- 
itable employment  ?  The  best  answer  is  another  ques- 
tion. What  business  man  wants  to  plead  that  with  our 
boundless  resources,  our  labor  of  unequalled  efficiency, 
and  our  home  market  of  the  world's  most  liberal  buyers, 
he  could  not  make  the  average  American  living,  and  pay 
the  wages  that  others  pay  all  around  him,  without  a 
steady  gift  from  the  public  to  be  added  to  his  selling 
price  ?  Such  an  industry  is  a  continual  source  of  loss. 
The  additional  kind  of  employment  it  affords  is  a  trifle 
compared  with  the  tax  on  consumers,  and  with  the  loss 
in  diversion  of  capital  from  self-supporting  business, 
whose  products  are  wanted  at  a  natural  price. 

British  Wages  Higher  Under  Free  Trade  Than  German 
Under  Protection.  —  Wages  in  Europe  have  long  been 
much  higher  in  free  trade  Great  Britain  than  in  Germany, 
France,  Russia  and  the  other  protective  countries  of  the 
Continent.'    British  wages  have  been  steadily  increasing 

'Robert  P.  Porter  found  by  careful  study  in  1883  that  American  wages 
were  from  60  to  loo  per  cent  higher  than  British,  but  from  100  to  150  per 
cent  higher  than  French  and  German.  ( Roberts,  270. )  The  same  year  Mr. 
Steinway  testified  before  a  Senate  committee  that  in  his  factory  in  New 
York  he  paid  piano  makers  thrice  the  wages  that  he  paid  in  his  factory  at 


i 


Protection  and  Wages.  367 

in  late  years,  and  the  work  day  has  been  almost  univer- 
sally shortened  to  nine  hours,  giving  the  Saturday  half 
holiday,  so  necessary  to  preserve  Sunday  as  a  day  of 
quiet  rest  and  religious  culture,  instead  of  a  day  of  harm- 
ful carousal.  American  wages  and  work  conditions  are 
now  so  little  better  than  the  British  that  our  immigration 
from  England  has  fallen  low  —  less  than  10,000  each 
year  since  1896.  Even  Irish  immigration  fell  from  73,- 
000  in  1888  to  25,000  in  1898.  Wages  and  work  in  the 
protected  American  cotton  mills  have  not  attracted  many 
English  operatives.^ 

How  it  is  That  Protection  Affects  the  Wage  Rate. 
But  neither  free  trade  nor  protection  affects  money  wages 
except  by  affecting  general  industry  —  by  building  up  or 
checking  business,  and  thus  increasing  or  decreasing 
income,  and  the  demand  for  labor.  No  employer  under 
free  trade  pays  low  wages  because  he  does  7iot  get  a 
public  bounty ;  neither  does  any  employer  under  pro- 
tection pay  high  wages  because  he  does  get  a  bounty. 
With  exceptions  too  few  to  consider,  due  to  generosity, 
incompetence,  or  lax  management,  each  pays  just  what  he 
has  to  pay  in  order  to  get  the  willing  service  of  the  class 
of  help  he  wants.     To  pay  more  would  be  to  make  a 

Hamburg.  (Levasseur,  283.)  An  exhaustive  investigation  made  in  1879 
by  United  States  consuls  showed  that  American  wages  were  I^  times  those 
of  Britain,  and  twice  those  of  Belgium,  but  thrice  those  of  France  and  Ger- 
many.     (Roberts,   274.) 

1  Reason  of  Differences  in  Wages. — "  American  weavers  turn  out  nearly 
twice  as  much  work  per  day  as  their  English  competitors,  and  their  wage 
per  piece  is  absolutely  a  little  less."  (Spahr,  30.)  A  similar  difference 
exists  between  parts  of  Britain.  In  Lancashire  women  weavers,  all  organ- 
ized in  unions,  work  with  a  will,  taking  four  looms  each  without  hesitation, 
and  earn  double  the  wages  of  women  in  Glasgow  on  the  same  class  of  work. 
The  latter  are  inefficient  and  unorganized,  commonly  minding  only  two 
looms.  The  best  women  workers  in  Glasgow  are  not  in  cotton  factories. 
(Sidney  Webb,  Problems  of  Industry,  80.) 


368  The  Plain  Facts  as  to  the  Tariff. 

gift.  That  free  trader  must  have  been  a  theorist  indeed, 
and  hard  pressed,  who  fetched  an  idea  as  far  as  that  of 
the  protectionist  who  said  our  employers  are  moved  to 
pay  high  wages  because  their  own  workmen  are  their 
best  customers.  Such  might  be  the  case  with  an 
employer  paying  wages  with  goods  he  could  not  sell, 
or  with  one  paying  in  truck  from  a  company  store.^ 

No  Possible  Escape  from  Low  Wages  When  Product 
Must  be  Small.  —  European  wages,  like  the  American, 
are  fixed  by  something  a  good  deal  stronger  and  harder 
to  change  than  a  tariff  law.  Wages  cannot  rise  above 
the  point  at  which  they  leave  just  enough  profit  to  keep 
the  marginal  employer  contentedly  in  business  (the 
employer  furnishing  that  portion  of  the  demanded  sup- 
ply which  is  produced  at  highest  cost).  Going  above 
this  point,  that  employer's  industry  stops.  Besides  this 
profit,  out  of  the  gross  income  from  sales  must  be  paid 
enough  interest  to  induce  one  to  save  and  invest  capital 
(or  as  much  interest  as  others  would  pay),  and  also  as 
much  rent  as  others  would  pay  for  the  land  used.  After 
these  three  shares  are  estimated  by  the  employer  before- 
hand, with  all  costs  of  material,  fuel,  etc.,  the  balance 
expected  may  all  be  taken  in  wages  if  the  workers  press 
these  upward  to  the  highest  point  this  marginal  employer 
will  bear.     Therefore, 

It  is  the  Net  Income  from  Product  That  Fixes  Wages 
beyond  possibility  of  upward  change.     Now  British  and 

'  High  Wages  to  Enlarge  the  Market. — High  wages  in  one  trade  are 
an  advantage  to  employers  in  other  trades,  making  better  demand  for  their 
goods ;  but  as  a  rule  not  enough  of  one  trade's  market  is  among  its  own 
men  to  be  noticeably  affected  by  their  increased  buying  with  higher  wages. 
Enlightened  self-interest  leads  an  employer  to  consent  to  pay  his  men  well 
for  the  sake  of  their  contentment  and  better  work,  not  in  order  to  enlarge 
his  market,  any  further  than  in  cheerful  consent  to  do  his  necessary  part 
toward  sustaining  the  beneficent  conditions  that  all  enjoy. 


Protection  ajtd  Wages.  369 

German  manufacturers  must  pay  the  costs  of  bringing 
cotton  from  America,  and  must  take  at  any  time,  for  all 
their  goods  of  a  particular  grade  then  offered,  the  export 
price  in  Asia  and  South  America  made  low  by  the 
poverty  of  the  buyers  and  by  the  large  supply  of  goods 
offered  there.^  This  competitive  price  fixes  their  net 
income,  and  that  income  fixes  wages. 

What  Europeans  Can  Do  to  Raise  Wages. — After  Euro- 
peans have  brought  from  every  continent  the  raw  ma- 
terials to  which  their  capital  and  labor  will  add  most 
value,  and  after  they  have  shipped  these  finished  prod- 
ucts to  the  world  markets  in  which  they  will  bring  most 
value  in  exchange,  they  have  done  all  they  can  do  to 
make  net  income.  And  after  reducing  their  profit  to  the 
lowest  rate  for  which  they  care  to  incur  the  risks  of 
business,  they  have  done  all  they  can  do  for  wages. 
Then  they  can  only  strive,  as  they  do  now,  to  improve 
the  situation  —  by  seeking  cheaper  raw  materials  in  dis- 
tant lands,  by  introducing  their  goods  into  new  markets 
where  they  will  trade  for  more,  by  embarking  in  new 
industries  at  home  and  abroad,  by  inventing  machinery 
to  do  work  at  less  cost  per  unit  of  product,  and  by  edu- 
cating their  workmen  to  turn  out  a  larger  product  with 
the  same  effort.     For  the  wage  workers  there  is  at  home 

'  How  Far  Price  Falls. — But  in  their  competition  to  make  more  sales 
producers  do  not  go  so  far  in  enlarging  product  and  lowering  price  as  to 
put  their  usual  profit  rate  below  the  average  in  other  open  industries  requir- 
ing no  greater  managing  skill.  Going  below  that  average  would  cause 
some  marginal  employers  to  change  over  to  other  business,  and  stopping 
their  output  would  give  higher  prices  and  higher  profits  to  producers  re- 
maining. Lowering  profit  rate  by  enlarging  product  and  reducing  price  in 
order  to  sell  it  all,  tends  usually  to  raise  instead  of  lower  wages,  because 
more  employees  are  then  needed  ;  though  if  carried  to  the  point  of  over- 
production, wages  fall  from  closing  of  factories  caused  by  failures  or  by  ac- 
cumulation of  unsold  goods. 
24 


370  Tlie  Plain  Facts  as  to  the  Tariff. 

no  unoccupied  land.  The  Continental  mountain  sides, 
marshes,  and  sand  wastes  by  the  sea,  are  cultivated  down 
the  scale  until  but  a  pittance  of  product  is  the  laborer's 
reward.  Men  must  take  the  wages  offered,  or  emigrate 
to  other  lands. ^ 

America  Will  Not  View  all  This  Struggle  Distantly,  with 
a  self-satisfied  feeling  of  superiority,  after  her  population 
has  approached  nearer  to  the  English  density  of  600  per- 
sons to  the  square  mile.  Product  and  net  income  to 
divide  with  wage  workers  are  larger  in  America,  because 
it  is  not  yet  necessary  for  her  people  to  work  sterile  soil 
and  poor  mines,  to  bear  the  expense  of  bringing  lumber, 
coal,  cotton,  grain,  and  food  products  from  other  lands, 
nor  to  turn  from  a  home  market,  rendered  weak  by  the 

^By  Moving  They  Might  Put  Wages  High. — A  closely  unionized 
trade,  so  highly  skilled  that  outsiders  could  not  enter  it,  with  every  man  pre- 
pared to  leave  the  country,  might  demand  and  get  high  wages,  which 
would  close  out  marginal  employers,  whose  capital  would  enter  more  prof- 
itable industries  or  go  abroad.  AH  occupations,  from  the  lowest  paid  up- 
ward, might  thus  raise  wages,  leaving  only  the  most  profitable  industries 
running,  and  diminishing  population,  so  that  each  man  would  have  a 
larger  share  of  natural  resources.  But  of  course  such  organization  and  in- 
dependence are  impossible  among  workers,  who  besides  might  not  all  be 
able  to  do  better  in  other  lands. 

The  Burden  of  Militarism,  which  in  Europe  takes  for  army  life  i  out 
of  every  25  men,  against  I  out  of  every  200  in  America,  provides  employ- 
ment and  makes  men  scarce ;  but  the  larger  the  army,  the  fewer  the  work- 
ers, the  smaller  the  annual  product  out  of  which  soldiers  and  all  must  live, 
and  the  larger  the  share  taken  in  taxes.  Protection  makes  employment 
with  similar  results,  rendering  total  product  less  valuable  than  it  would  be 
with  unaided  choice  of  occupations.  The  military  spirit  also  turns  able 
men  into  the  army  who  in  America  would  be  leaders  of  industry.  Edward 
Atkinson  (Indus.  Com.,  XIII.)  estimates  that  taxation  takes  33^  per 
cent  of  total  annual  product  in  Italy,  15  to  18  in  France,  10  in  Germany, 
8  in  Great  Britain,  and  3  in  the  United  States ;  also  that  in  annual  prod- 
uct per  head,  the  United  States  exceeds  Great  Britain  by  15  to  20  per 
cent,  France  by  25  to  30  per  cent,  and  Gennany  by  40  to  50  per  cent. 
With  these  two  great  causes  of  difference  in  our  favor,  it  is  not  strange  that 
our  wages  are  double  those  of  Germany, 


Protection  and  Wages.  371 

poverty  of  a  crowded  people,  and  by  high  proportion  of 
makers  to  buyers  in  every  line,  to  search  the  world  over 
for  chances  to  sell.' 

But  Steadily  America  is  Approaching  European  Con- 
ditions. —  Every  day,  seven  days  in  a  week,  the  year 
around,  on  an  average,  nearly  1,400  foreigners  land  on 
these  shores  (487,918  in  1901).  Most  of  them  are  alien 
and  often  hostile  to  the  principles  that  made  this  country 
great.  In  1901,  of  those  over  14  years  old,  271^  per 
cent  were  illiterate.  Every  day  each  person's  share  of 
land  and  raw  materials  to  work  on  grows  less.  Steadily 
minerals  are  sought  deeper,  and  timber  obtained  inland 
from  rivers  at  greater  expense.  Every  year  a  man  leav- 
ing low  wages  to  take  up  a  farm  must  content  himself 
with  land  no  one  would  choose  the  year  before.  Hence, 
lower  and  lower  drops  the  point  in  wages  from  which  a 
man  will  turn  to  vacant  land.  When  invention  and  im- 
provement in  production  fail  to  keep  pace  with  inroads 
on  resources,  then  the  fall  of  wages  will  begin. 

Foreign    Goods    or    Foreign    Men  1  —  Foreign    labor 

1  Thickly-Settled  Rhode  Island  has  now  407  persons  to  the  square 
mile.  Massachusetts  has  349  ;  New  Jersey,  250  ;  Connecticut,  1 87  ;  New 
York,  152;  Pennsylvania,  140 ;  Maryland,  120 ;  Ohio,  102;  Arkansas, 
24 ;  Maine,  23  ;  and  Wyoming  not  quite  i. 

Poverty  of  Buyers  Makes  a  Market  Weak  because,  in  order  to  avoid 
accumulation  of  unsold  stocks,  the  one  uniform  price  for  all  of  a  product 
offered  at  any  time  and  place  must  be  low  enough  to  enable  the  poorest  to 
buy  whose  consumption  is  depended  upon  as  a  part  of  the  market.  High 
proportion  of  makers  to  buyers  in  reach,  bringing  profit  down  to  the  lowest 
rate  men  will  stay  in  business  to  get,  is  usually  the  case  in  an  old  country, 
where  time  and  absence  of  change  has  filled  every  occupation,  dividing 
sales  at  the  low  profit  among  as  many  competitors  as  can  find  passable  sup- 
port. Low  wages  per  item  and  low  profit,  lower  prices  by  turning  out  a 
large  product  with  a  given  capital.  The  price  a  given  demand  fixes  for  a 
given  supply  would  be  the  same  if  the  goods  had  been  picked  up  without 
any  cost  of  production. 


3/2  The  Plain  Facts  as  to  the  Tariff. 

brought  in  goods  adds  to  our  wealth  by  their  excess  of 
value  here  over  our  goods  traded  for  them,  and  saves 
our  resources  by  the  material  used  in  that  excess.  For- 
eign labor  coming  in  men  adds  to  our  wealth  from  our 
resources  only,  and  hastens  the  day  of  diminishing  returns 
from  land  and  mines.  On  no  piece  of  land  decently 
farmed  will  doubling  the  labor  and  fertilizer  double  the 
product.  On  land  well  farmed  additions  of  labor  bring 
a  return  smaller  and  smaller.  Wages  in  Australia  and 
New  Zealand  are  about  as  high  as  ours,  because  for  each 
worker  resources  are  plentiful.  In  England  soil  fertility 
averages  above  ours,  the  food  market  is  much  better,  and 
labor  is  about  as  efficient,  at  least  when  it  comes  here. 
Farm  wages  are  lower  because  of  crowded  population, 
raising  land  values  and  rent,  and  preventing  farming  on 
a  large    scale    by   machinery.^     In   a  new  country  the 

'Why  Europeans  Cannot  Get  a  Better  Living. — Rent  takes  so 
much  of  the  English  farmer's  gross  income  (being  as  high  as  $8  an  acre 
per  year  for  good  land)  that  paying  higher  wages  would  not  leave  enough 
to  keep  him  in  business.  If  the  government  dispossessed  the  landlords, 
and  divided  the  land  equally  among  all,  rent  would  soon  exist  as  before. 
A  person  receiving  a  poor  allotment  would  pay  rent  to  another  in  order  to 
get  the  use  of  his  better  allotment.  It  would  be  the  same  if  ownership  re- 
mained with  the  government.  A  tenant  does  not  care  who  gets  the  rent 
he  pays ;  what  he  wants  is  the  use  of  the  land.  If  the  government  rented 
to  one  person  cheaply,  another  would  offer  more.  Many  people  to  support 
give  land  high  value,  and  high  rent.  From  this  there  is  no  escape,  except 
by  going  to  where  land  is  cheap,  or  by  making  low  rent  land  better, 
which  improvement  might  soon  raise  its  rent  accordingly.  And  when  to 
feed  all  the  people  it  is  necessary  to  bring  food  from  a  great  distance, 
and  to  cultivate  poor  land,  the  price  for  all  of  a  food  product  offered 
must  be  high  enough  to  keep  in  business  those  farmers  depended  upon 
whose  labor  and  capital  bring  the  smallest  product.  This  fact  makes  high 
prices  for  consumable  supplies,  which,  with  the  low  money  wages  neces- 
sitated by  the  small  net  income  brought  by  labor  to  the  employer,  reduces 
the  common  people's  living  to  a  scanty  allowance.  Factory  men  whose  work 
is  easily  learned  cannot  get  much  more  than  farm  hands,  because  the  latter 


Protection  and  Wages.  373 

chance  to  start  in  production  with  improved  methods, 
free  from  tyranny  of  custom,  balances  largely  an  old 
country's  advantage  in  established  business. 

The  Pauper  Labor,  Neither  of  Europe  Nor  of  China, 
can  harm  us  so  long  as  it  stays  out  of  our  country. 
While  yet  at  home,  it  can  only  reach  us  with  goods 
worth  more  to  us  than  the  price  asked.  The  most  skill- 
ful foreign  labor  likewise,  working  with  best  machinery 
and  best  materials,  is  only  kept  by  protection  from  bene- 
fiting us  with  good  values,  and  from  getting  at  the  same 
time  extra  value  for  itself.  That  is  the  effect  of  a  tariff 
that  makes  scarcer  the  products  of  a  few  of  our  people 
unfortunately  started  in  the  wrong  business. 

Do  We  Want  Work  or  Goods  ?  —  Against  the  reciprocity 
treaty  with  France  it  is  argued  ^  that  we  send  her  chiefly 
crude  products  of  the  soil,  while  she  sends  us  articles 
manufactured  to  a  high  degree.  Here  again  is  the  idea 
that  we  want  work,  not  its  products.  This  is  called  pro- 
tecting labor,  a  phrase  spoken  by  protectionists  as  often 
as  possible.  Why  invent  machinery  and  save  labor  every 
way  we  can  ?  The  work  we  save,  in  getting  a  foreign 
product  by  exchange  with  less  labor  than  making  it  here 
would  require,  reduces  its  money  cost,  and  leaves  its 
buyers  more  money  to  spend  for  home  goods  in  which 
our  labor  produces  more  value.  Our  law  requiring  that 
a  foreign  book,  to  be  copyrighted  in  this  country,  must 
be  put  in  type  and  printed  here,  benefits  printers  so  far 
as  that  is  done  ;  but  this,  with  the  tariff  on  completed 
volumes  imported,  adds  largely  to  the  book's  price, 
which  probably  lessens  sales  of  other  books,  and  causes 

too  -would  then  learn  factory  work.      Factory  wages  are  kept  down  also 
by  the  conditions  described  is  the  preceding  pages. 
'E.  J.  Gibson,  The  Forum,  Dec.  1901. 


374  ^^^^  Plain  Facts  as  to  the  Tatnff. 

many  to  go  without  it  whom  it  would  benefit.  Similarly, 
prohibiting  use  of  type-setting  machines  would  raise  price 
of  newspapers,  or  reduce  their  size,  and  probably  employ 
fewer  people.* 

Wages  Per  Day  or  Hour  Do  Not  Measure  the  Cost  of 
Labor  Per  Yard  or  ton  of  product.  An  American  manu- 
facturer paying  $2  per  day  may  turn  out  his  product  at 
a  lower  cost  per  yard  for  labor  than  his  European  com- 
petitor paying  $  i  per  day.  The  high  tariffs  of  Germany 
and  Russia  have  long  been  levied  to  protect  their  work- 
men, with  their  low  pay  and  long  days,  from  competition 
with  the  low-priced  goods  produced  under  the  high  pay 
and  short  days  of  Great  Britain.     As  a  rule,  the  lower  the 

1  Filling    the  Country   Willi  People    to  Consume    Products   at 

home  was  an  old  argument  not  mentioned  now,  though  it  is  about  as 
sound  as  some  others.  A  foreigner  arriving  produces  more  to  be  sold  than 
he  gets  to  buy  with,  or  else  he  could  not  earn  his  wages.  His  excess  of  pro- 
duction is  desirable,  increasing  goods  to  divide  ;  but  not  from  the  standpoint 
of  the  average  protectionist,  who  desires,  not  plenty  of  goods,  but  a  lack  of 
them,  which  he  thinks  causes  demand,  but  which  really  makes  people  un- 
able to  demand.  It  is  better  for  America  to  increase  wages  in  Europe  by 
accepting  good  trades,  than  by  drawing  the  people  over  here  to  hasten 
the  day  when  our  conditions  for  getting  a  living  may  be  but  little  better 
than  theirs.  The  movement  toward  filling  the  country  with  people,  and 
using  up  its  resources,  is  added  to  when  protective  duties  so  high  as  to  pro- 
hibit imports  force  foreign  manufacturers  to  start  branches  in  America  in 
order  to  do  business  here.     Competition  from  them  is  not  then  avoided. 

Counting  an  Abie-Bodied  Immigrant  as  Having  a  Money  Value, 
and  as  being  an  addition  to  America's  wealth — say  $500,  as  the  cost  of 
bringing  him  up — was  common  twenty  years  ago,  when  immigrants  were 
greatly  desired  by  our  undeveloped  regions.  (Roberts,  228. )  Immigration 
added  to  rapid  rise  of  land  values,  building  of  railroads,  and  increase  of  all 
business  and  profits — so  far  as  not  balanced  by  the  enormous  wastes  of  hasty 
and  speculative  development.  But  it  is  probable  that  in  a  period  of  only 
one  century,  from  1850,  a  larger  net  addition  would  have  been  made  to  the 
desirable  wealth  and  well-being  of  America,  and  possibly  of  the  world,  if 
our  immigration  had  been  but  half  as  great.  To  a  large  extent  the  re- 
sources of  a  state,  as  of  a  forest,  may  be  so  developed  as  to  yield  the  most, 
or  wastefully  rushed  through  with  in  a  few  years. 


Protection  and  Wages.  375 

wages  and  the  longer  the  day,  the  less  is  the  work  done, 
and  the  poorer  its  quality.  Russia  pays  the  lowest 
wages  in  Europe,  and  has  to  conquer  Chinese  territory 
to  force  the  people  with  a  tariff  to  buy  her  manufactures. 
Great  Britain  pays  the  highest  wages  in  Europe,  and 
asks  only  an  open  door  (an  equal  right  with  others)  in 
order  to  sell  her  goods  in  China  or  anywhere  else. 

Do  Our  Best  Manufacturers  Want  Cheap  Labor?  — 
Whether  an  employer  wants  well  paid  or  poorly  paid 
labor  can  be  studied  here  at  home,  without  looking 
abroad.  Anybody  knows  that  the  leading  shops  in  any 
industry,  especially  Avhere  quality  counts,  pay  the  highest 
wages,  besides  using  the  best  machinery.  They  could 
get  cheaper  labor  if  they  wanted  it.  The  force  of 
second-grade  men  employed  at  low  wages  by  a  strug- 
gling concern  would  be  glad  to  work  at  the  same  pay 
for  an  employer  in  the  front  rank,  and  able  to  pay  them 
promptly.  But  he  could  not  use  them  on  skilled  work 
if  they  served  for  nothing.  They  would  soon  spoil  his 
machinery,  and  lower  the  reputation  of  his  goods.  Any 
one  can  always  get  worse  help  by  paying  less,  down  to 
the  grade  of  children,  dullards,  and  numskulls ;  and 
better  help  by  paying  more,  up  to  the  grade  of  experts 
and  geniuses. 

Would  They  Trade  Theirs  for  That  of  Europe  ?  —  The 
many  and  great  industries  that  have  grown  up  here  on 
merit,  whose  products  sell  abroad  against  any  competi- 
tion, are  evidently  at  home  in  America,  not  depending 
upon  a  protective  hot-house.  Their  highly  paid  labor 
they  do  not  care  to  exchange  for  the  poorly  paid  labor 
of  Europe.  It  is  the  unequalled  efficiency  of  their  labor 
(developed  by  the  encouragement  of  high  wages)  which, 
with  their  unequalled  machinery  and  raw  materials,  en- 


376  The  Plain  Facts  as  to  the  Tariff. 

ables  them  to  capture  the  markets  of  the  world.  Good 
pay  is  a  cause  of  large  product  in  drawing  out  the  best 
effort  of  men  who  know  they  must  produce  enough  to 
earn  it ;  but  perhaps  it  is  more  truly  a  result,  arising  from 
division  of  a  product  sufficient  to  yield  each  a  large  share. 
The  objection  of  protected  manufacturers  to  making 
known  their  labor  cost  per  unit  of  product  indicates  that 
it  is  low,  despite  high  wages.^ 

1  Hadley,  436. 

The  Proper  Protection,  if  possible  to  determine  the  amount  to  allow  a 
desired  industry  that  could  not  live  without  it,  though  there  is  little  pretence 
to  keep  duties  so  low,  would  be  a  duty  just  high  enough  to  balance  greater 
aggregate  cost  of  labor  and  materials,  and  to  yield  the  marginal  employer 
the  average  rate  of  profit.  A  higher  duty  would  protect  the  producer 
against  inflow  of  goods  at  sacrifice  prices  in  dull  times  abroad,  but  at  all 
other  times  it  might  subject  the  consumer  to  risk  of  overcharge.  The  for- 
eigner is  no  more  likely  to  have  a  surplus  to  dump  than  our  need  at  times 
is  likely  to  exceed  home  supply.  Just  now  (February,  1902)  foreign  steel 
rails  for  Florida  are  being  bought  at  a  price  raised  by  the  duty  %^  above  the 
home  rate.  The  home  output  is  sold  ahead  for  six  months.  Various 
forms  of  steel  are  being  bought  abroad  at  a  similar  loss  in  cases  of  urgent 
need,  and  many  buyers  are  going  without.  This  condition  is  expected  to 
continue  during  most  of  the  year.  By  such  shortage  in  supply  of  materials, 
home  industry  is  injured. 

Labor  Per  Unit  of  Product  Higher  in  England. — Measured  by 
amount  of  work  done,  some  important  kinds  of  labor  cost  much  more  in 
England  than  in  America,  owing  partly  to  old  regulations  of  British  trade 
unions  and  partly  to  use  of  old  machinery.  This  fact,  and  its  blighting 
effect  on  trade,  were  brought  out  forcibly  in  November,  1900,  by  a  London 
correspondent  of  the  New  York  Sun,  and  in  the  North  American  Review 
of  August,  1 901,  by  Benjamin  Taylor;  also  in  Scribticr's  for  March  and 
Popular  Science  Monthly  for  April,  1 902.  The  following  is  a  clipping  from 
a  press  dispatch  of  May  12,  1 901  :  "  Louis  Gassier  has  come  over  to  pave 
the  way  for  a  delegation  of  British  workmen  of  the  engineering  trade,  who 
will  visit  this  country  six  or  eight  weeks.  The  reason  of  their  visit  is  to  see 
how  American  workmen  perform  a  day's  work.  Mr.  Gassier  said  :  '  British 
workmen  have  suddenly  awakened  to  the  fact  that  Germany  and  this 
country  are  getting  the  best  of  them  in  trade  competition.  Engineers  have 
visited  this  country,  but  in  spite  of  this,  we  are  not  getting  the  same  results.'  " 
Mr.  Alfred  Moseley  is  arranging  to  bring  on  a  visit  to  America,  in  the  fall  of 


Protection  and  Wages.  377 

Their  Consuming  More  Proves  That  Our  Workmen 
Produce  More.  —  Real  wages  in  commodities  enjoyed, 
much  larger  in  America  than  in  Europe,  prove  con- 
clusively that  American  workmen  produce  more  goods. 
All  we  consume  our  workmen  produce,  either  the  article 
itself  or  another  article  traded  for  it  abroad.  Every 
workman,  however  large  his  pay,  produces  more  value 
for  his  employer  than  he  gets  in  wages.  He  will  not 
long  be  hired  at  a  loss.^ 

Are  European  Profits  High  Because  Wages  are  Low  ? 
In  comparing  European  wages  with  American,  the  protec- 
tionist assumes  that  amount  of  work  done  is  about  equal. 
If  the  European  workman  at  low  wages  does  not  get 
his  full  share  of  all  he  earns,  what  becomes  of  the  differ- 
ence ?  If  it  fell  to  his  employer  in  high  profits,  Europe's 
many  years  of  savings  would  have  been  invested  in  new 

1902,  delegates  from  workmen's  unions  in  five-sixths  of  Britain's  great  in- 
dustries. 

Are  Highest  Paid  Workers  Best  ? — Some  experienced  employers,  es- 
pecially farmers,  will  object  to  the  statement  that  the  highest  paid  men  are 
the  best  workers.  It  is  true  that  a  man  in  the  habit  of  asking  most  may  also 
be  most  given  to  saving  himself  from  doing  too  much.  But  after  it  has  become 
known  that  he  is  not  a  desirable  worker,  the  price  he  can  get  will  become 
settled  at  about  the  proper  point.  He  is  better  at  selling  his  labor  than  at 
doing  it.  On  the  contrary,  another  may  be  good  at  work  but  poor  at  busi- 
ness, doing  habitually  as  much  as  others  better  paid.  The  high  wages  re- 
ferred to  above  are  those  willingly  paid  to  men  by  whom  they  are  well  earned. 

•  How  Much  More  We  Produce. — Chief  Geographer  Henry  Gannett, 
in  The  Forum  of  May,  1902,  says  that  in  the  United  States  the  average  for 
each  man  at  work  in  farming  is  now  a  yearly  product  of  $900  in  value,  and 
a  cultivated  area  of  44  acres  ;  in  France,  $588  and  13  acres  ;  in  Germany, 
$510  and  8  acres  ;  and  that  in  gross  value  of  product  per  worker  in  manu- 
facturing, including  value  of  materials  used,  the  average  is  51,900  per  year 
in  the  United  States,  I650  in  France,  $485  in  England  and  ;S5450  in  Ger- 
many. Our  larger  resources  give  not  only  more  land  and  cheaper  mate- 
rials, but  permit  wider  use  of  machinery  and  better  methods,  bring  us 
picked  men  from  other  lands,  and  encourage  enterprise,  both  with  large 
product  and  with  a  rich  home  market. 


3/8  Tlic  Plain  Facts  as  to  the  Tariff, 

industries  at  home,  and  we  should  not  now  have  the 
;^2,ooo,ooo,ooo  of  foreign  capital  invested  in  this  country, 
nearly  all  from  the  start  in  unprotected  industries  ;  nor 
would  our  capitalists,  now  that  our  country  has  accumu- 
lated more  wealth  than  we  have  acceptable  business 
openings  for,  have  invested  nearly  ;^  100,000,000  last  year 
in  British  consols  at  an  interest  of  only  2^  per  cent. 
It  is  in  America  where  capital's  share  of  the  product  has 
long  been  heretofore  the  largest  in  the  world,  in  high 
interest,  and  where  it  is  still  the  largest  in  high  profits. 
The  scanty  living  of  European  workmen,  therefore, 
where  rent  is  not  an  important  item  to  their  employer, 
comes  nearer  to  being  all  they  produce  than  is  the  case 
with  the  large  living  of  our  workmen.  If  the  low  wages 
of  Europe  gave  the  employer  the  large  share  implied 
in  protective  argument,  our  capitalists  would  rush  to 
Europe  as  people  rushed  to  California  in  1849.  Loca- 
tion in  America  would  not  be  necessary  for  our  many 
industries  that  sell  abroad. 

Why  Do  Not  Our  Industries  Move  South,  Where  Labor 
is  Cheap?  —  United  States  Labor  Bulletin  No.  29  shows 
farm  wages  by  the  year,  with  board,  to  average  ;^8.05  per 
month  in  North  Carolina,  against  ^18.38  in  Iowa.  Here 
the  higher  is  128  per  cent  above  the  lower,  while  pro- 
tectionists themselves  estimate  American  wages  at  only 
about  60  per  cent  above  the  British.^  If  low  wages  are 
an  advantage  to  the  employer,  why  do  not  Southern 
farmers,  occupying  nearly  half  our  tillable  land,  drive 
Iowa  farmers  out  of  business  ?  Why  do  not  the  latter 
move  to  the  South,  land  there  being  cheap,  settlers 
welcome,  and  the  journey  short  ?  Why  do  not  people 
take  up  land  and  start  towns  near  by  in  the  South,  where 

» Roberts,  275. 


Protection  and  Wages.  379 

labor  is  cheap,  instead  of  going  to  the  far  Northwest, 
where  labor  has  the  highest  wages  in  the  world  ?  South- 
ern labor  is  cheap  in  factories  too,  as  well  as  on  farms ; 
and  there  is  as  much  protection  in  the  South  as  in  the 
North. 

After  all,  What  is  the  Protectionist's  Whole  Claim  as  to 
wages  but  balderdash  ?  It  was  worked  up  in  later  times, 
doubtless  because  industries  had  grown  too  old  and  strong 
to  claim  protection  as  infants.  The  earlier  writers  for 
protection  advanced  better  reasons,  intending  it  to  be 
temporary,  to  start  industries.  Whether  arising  from 
resources  or  skill,  difference  in  net  product  above  rent 
makes  difference  in  wages  between  Europe  and  America, 
just  the  same  as  between  North  Carolina  and  Iowa. 
As  a  rule,  the  employer's  profit  is  least  where  wages 
are  lowest,  as  in  the  most  backward  districts  of  Europe ; 
and  greatest  where  wages  are  highest,  as  in  Montana. 

America  Could  Not  Export  a  Dollar's  Worth  of  Any- 
thing at  full  profit  if  low  cost  of  production  depended  on 
low  hourly  wages.  India  and  Egypt  would  produce  the 
cotton,  Russia  the  wheat,  and  the  rest  of  Europe  the 
manufactures.  In  these  lands  wages  average  less  than 
half  the  American — in  some  cases  less  than  a  quarter 
(Atkinson).  The  purpose  of  protection,  it  is  said,  is  to 
preserve  opportunity,  and  keep  our  civilization  on  its 
higher  plane.  Illinois  might  as  well  ask  protection 
against  the  Alabama  black  belt.  The  workers  of  India 
and  Russia  produce,  above  rent  and  taxes,  barely  enough 
to  keep  themselves  alive,  letting  alone  the  supply  of 
other  markets  (Shearman).  If  Professor  Gunton  is  cor- 
rect in  saying  that  New  Englanders  taking  their  ma- 
chinery South  get  their  cotton  spun  much  cheaper,  and 
if  such  gain  is  to  be  depended  upon,  what  is  to  keep  the 


380  TJie  Plain  Facts  as  to  the  Tariff. 

world's  factories  from  drifting  to  India  to  use  ten-cent 
labor  ?  But  the  industrial  centers  have  no  fear  of  such 
a  change.  With  machinery,  upon  which  the  world's 
production  now  depends,  cheap  labor  does  not  answer 
for  a  fine  product.  In  Bombay  cotton  mills  it  takes 
three  to  five  people  to  do  the  work  of  one  in  Massa- 
chusetts (Atkinson).^  Our  workers,  the  strong,  do  not 
need  protection  against  the  weak.  There  is  more  reason 
for  protecting  the  latter,  as  in  Russia,  against  better  paid 
labor  elsewhere  ;  though  in  Russia,  where  protection  aids 
one,  it  taxes  a  hundred. 

Mr.  Reed's  Idea  of  Increasing  Wages. — In  Mr.  Reed's 
idea  that  increasing  wages  would  enable  the  people  of 
our  home  market  —  so  highly  prized  and  so  carefully 
guarded  —  to  take  all  our  products  as  they  increased  in 
quantity,  he  assumed  that  such  would  be  possible,  with- 
out explaining  the  process.  His  was  a  vain  hope. 
Where  profit  is  already  as  low  as  the  employer  will  stay 
in  business  to  get,  and  rent  and  interest  are  not  to  be 
lowered,  wages  can  rise  only  by  increase  of  product 
value,  either  by  rise  of  demand  and  price,  or  by  produc- 
tion of  more  goods  at  the  same  total  cost  as  before.  To 
make  price  rise,  without  decreasing  the  supply,  there 
must  be  additional  buyers,  at  home  or  abroad,  or  pre- 
vious buyers  must  increase  their  demand.  But  as  higher 
profit  from  higher  price  is  usually  temporary,  from  influx 
of  capital  into  new  production,  wages  rise,  both  in  money 
and  in  goods  consumed,  from  larger  product  at  the  same 

'  Also,  if  lowering  our  tariff  on  trust-made  goods  now  exported  would 
bring  international  trusts,  which  would  locate  factories  where  wages  are 
lowest,  why  did  our  Singer  Sewing  Machine  Co.  build  its  great  plant  at 
Glasgow,  and  our  Hoe  Printing  Press  Co.  build  at  London,  when  they 
could  have  shipped  their  machines  into  free-trade  Britain  from  Continental 
countries  paying  half  her  wages  ? 


Protection  and  Wages.  381 

total  cost.  Now  as  one  improving  industry  may  enlarge 
product,  while  all  other  industries  may  not,  their  money 
income  remaining  unchanged,  how  could  the  people  of 
the  latter  take  the  added  product  of  the  one,  unless  it 
were  all  given  them  for  the  same  money  they  paid  for  it 
before,  or  unless  they  curtailed  their  use  of  other  prod- 
ucts, or  relaxed  habits  of  saving  ?  Setting  aside  sav- 
ing as  unimportant,  or  as  more  likely  to  increase  than 
diminish,  how  could  money  wages  then  rise  in  the  one 
without  leaving  other  producers'  products  unsold,  not  to 
be  worked  off  except  by  taking  a  less  total  of  money 
than  before  ? 

By  Shipping  the  Extra  Product  Over  the  World  the  ad- 
dition is  least  noticed,  there  is  least  fall  of  price  of  the 
one  commodity,  and  least  fall  in  the  other  things  it  dis- 
places. What  is  taken  from  price  then  increases  real 
wages  or  income  everywhere,  with  more  of  the  com- 
modity for  the  same  money.  What  remains  in  price  per 
pound  or  yard  out  of  the  reduction  of  its  cost,  may  be 
divided  between  profits  and  money  wages  in  the  one  in- 
dustry ;  and  by  increasing  their  skill,  to  produce  more 
and  to  raise  themselves  above  others  who  might  take 
their  places,  the  workers  may  retain  their  extra  wages, 
while  the  employer's  extra  profit  must  soon  give  way 
before  the  influx  of  new  capital.  Such  a  beneficent  proc- 
ess has  continually  been  going  on  in  the  world's  indus- 
trial progress  of  the  last  eighty  years  —  since  the  English 
labor  movement  of  1820  and  later. 

This  Theory  is  None  the  Less  True  Because  it  is  Beauti- 
ful.—  The  Almighty  knew  better  how  to  adjust  the  forces 
of  industry  than  do  manufacturers  with  themselves  to  look 
out  for.     He  was  even  wiser  than  "  the  whole  race  "  ^  of 

1  Mr.  Reed's  speech. 


382  TJie  Plain  Facts  as  to  the  Tariff. 

protectionists,  who  in  trade  restriction  are  only  the  de- 
scendants of  the  people  who  made  laws  fixing  wages  and 
prices,  prohibiting  an  outsider  from  coming  into  a  town 
to  work,  and  forcing  a  manufacturer,  whether  he  so  de- 
sired or  not,  to  sell  his  goods  through  retailers.  Such 
laws  were  in  force  in  England  until  near  the  end  of  the 
eighteenth  century. 

Like  Other  Cases  of  Meddling  With  Nature,  trying  to 
make  the  home  market  take  all  the  product  not  only 
fails  to  relieve,  but  aggravates  the  trouble  of  changing 
from  one  industry  to  another.  Protection,  by  shutting 
out  foreign  commodities  for  which  the  excess  product 
mentioned  above  might  be  traded  at  a  profit,  raising  its 
home  price, —  may  force  the  weaker  producers  out  of  the 
one  improving  industry,  leaving  their  labor  idle,  and  thus 
lessen  its  rise  of  money  wages  ;  for  price  falls  most  when 
extra  quantity  must  be  marketed  at  home.  Undoubtedly, 
the  inability  of  Europeans  to  buy  more  of  our  farm  prod- 
ucts, because  of  our  refusal  to  take  their  goods  in  ex- 
change, has  been  largely  the  cause  of  twenty-five  years  of 

Depression  in  American  Agriculture.  —  It  is  improved 
farming  that  has  hurt  the  farmer.  Our  farm  workers,  in- 
cluding employers,  have  only  doubled  since  1850,  while 
wheat  product  has  increased  six  times,  and  the  product 
of  hay,  meat,  poultry,  and  butter  from  20  to  100  times. ^ 
A  politician  dwells  on  increases  to  glorify  protection, 
assuming  that  it  has  been  the  cause  of  growth  ;  but  an 
investigator  does  not  prattle  in  figures  without  regard  to 
what  they  mean. 

The  Tenfold  Growth  of  City  Population  in  the  United 
States  since  1850  explains  a  rural  growth  but  little  more 
than  twofold.     The  drift  from  country  to  city  is  well 

^  Mc  dure' s  Magazine,  Sept.  1 901. 


Protection  and  Wages.  383 

known.  Country  population  is  smaller  in  many  coun- 
ties than  it  was  twenty  or  even  thirty  years  ago.  Many 
thousands  have  given  up  farming,  because  large  total 
product,  due  to  improved  machinery  and  transportation, 
made  prices  too  low.  Their  going  to  the  city  has  not 
helped  money  wages  nor  profits  there,  neither  has  their 
increase  there  of  manufactured  goods,  nor  the  low  price 
of  farm  products,  added  to  the  country's  real  wages  in 
commodities  so  much  as  if  natural  inflow  and  outflow  of 
good  trades  had  been  allowed.  Low  price  of  farm  prod- 
ucts has  reduced  the  buying  capacity  (for  these  manu- 
factures) of  the  agricultural  class,  about  8,000,000  work- 
ers in  1890,  out  of  a  total  of  22,000,000  workers  ;  and 
the  flocking  of  people  to  the  cities,  though  prevented  by 
labor  unions  from  lowering  wages  per  hour,  has,  during 
much  of  the  time,  divided  up  the  days  of  work  into  small 
shares,  making  employment  irregular,  and  earnings  per 
year  very  low.  Progress  consists  largely  of  releasing 
people  from  growing  food  to  produce  other  things,  with 
which  average  comfort  may  be  increased  ;  but  when  the 
process  is  natural,  with  a  chance  to  spread  a  surplus  over 
the  world,  it  need  not  crowd  out  farmers  so  fast  as  to 
hold  them  in  prolonged  depression. 

Is  it  a  Benefit  to  Us  to  Weaken  Other  Nations  ?  —  The 
fact  that  our  refusal  to  take  goods  has  weakened  foreign- 
ers too  —  giving  the  European  worker  less  food  for  his 
earnings,  and  the  European  employer  less  money  to 
divide  in  wages  —  would  probably  not  be  rejoiced  over 
by  protectionists  now  as  they  have  done  in  the  past.^ 
That  was  the  doctrine  of  Cain.  His  hand  was  against 
every  man,  and  every  man's  hand  was  against  him.  The 
same  policy  has  been  followed  ever  since  by  savages. 

iHadley,  444. 


384  The  Plain  Facts  as  to  the  Tariff. 

They  are  not  troubled  about  free  trade,  having  nothing 
to  exchange.^ 

"As  Wages  Fall  Profits  Rise  "  is  a  true  doctrine  when 
applied  to  the  vital  matter,  namely,  wages  per  yard  or 
ton  of  product.  Such  a  fall  of  wages  is  the  essence  of 
progress,  benefiting  the  employer  first  in  higher  profit, 
then  his  workmen  in  more  money  per  hour,  and  then 
every  person  as  a  consumer  in  falling  price.  The  ease 
of  deceiving  workingmen  and  farmers  with  shibboleths 
as  to  high  wages  and  high  prices  has  long  given  protec- 
tion demagogic  success.  Constant  reassertion  has  suf- 
ficed, without  giving  these  claims  a  shred  of  support  in 
fact.  It  is  useless  to  talk  about  money  wages,^  which 
depend  on  net  income  from  product,  when  the  employer 
is  prevented  by  law  from  buying  his  materials  where 
they  are  cheapest  and  selling  his  goods  where  they  are 
dearest ;  or  to  talk  of  high  prices  to  the  farmer,  when 
his  price-making  surplus  must  be  shoved  abroad  on  to 
people  whose  means  of  payment  are  shut  out  by  the 
tariff.     It   is   worse    still    to   dwell    admiringly   on    our 

'  This  Idea  Carried  to  Ridiculous  Extremes. — In  late  years  not  a  few 
have  said  America  should  have  protection  because  Great  Britain  desires  us 
to  have  free  trade.  This  idea  was  carried  to  extremes  in  former  centuries.^ 
France  and  England,  in  mutual  hatred,  each  fearing  to  lose  a  trade  balance 
of  gold,  and  each  desiring  to  weaken  the  other,  had  raised  duties  until  in 
1776  the  lowest  rate  was  about  75  per  cent.  Adam  Smith  wrote  :  "  Re- 
straints have  put  an  end  to  almost  all  fair  commerce  between  the  two 
nations,  and  smugglers  are  now  the  principal  importers."  There  was  no 
lack  of  effect.  Each  nation  harmed  the  other  as  intended,  with  as  much 
harm  to  itself  thrown  in  extra.  At  times  in  England  trade  with  France 
was  absolutely  prohibited.  Some  German  and  Austrian  statesmen  desire 
to  follow  now  a  somewhat  similar  policy  against  the  United  States.  Fortu- 
nately our  President  and  Congress  will  be  too  sensible  to  be  drawn  in. 

2  What  Can  be  Done  Through  the  Standard  of  Living  ?— Work- 
men's demand  (Mr.  Reed's  speech)  for  higher  wages  is  a  minor  force, 
whatever  the  standard  of  living  they  would  like  to  set  for  themselves. 
Those  with  money  on  hand,  and  well  able  to  support  a  demand,  do  not 


Protection  and  Wages.  385 

people's  desire  to  raise  their  standard  of  living  —  on  the 
tasteful  silks  of  the  workingman's  wife  —  when  protec- 
tion can  protect  only  by  making  things  scarce. 

live  up  to  their  income,  and  hence  are  not  directly  impelled  by  their  stand- 
ard, but  by  the  opportunity  to  get  more  money,  to  be  used  to  raise  the 
standard  eventually.  The  vital  factors  are  those  which  make  the  oppor- 
tunity. To  prevent  an  employer  from  trying  to  take  profit  out  of  wages,  a 
high  standard  of  living  and  of  saving  among  workmen  is  important,  caus- 
ing them  to  resist  by  striking,  moving,  or  working  discontentedly  and  in- 
efficiently. But  to  push  wages  upward,  workmen's  demand  has  simply 
the  effect  to  get  their  full  share,  which  is  changed  by  other  forces,  and 
which  they  may  already  be  receiving.  These  other  forces,  aside  from  the 
necessary  rates  of  interest,  rent  and  profit,  are  ( I )  the  cheapening  of  pro- 
duction as  described  above,  and  (2)  the  intensity  to  which  the  least  de- 
sired or  price-fixing  portion  of  the  product  is  wanted — explained  above  in 
rise  of  price  from  increased  demand.  Enlarged  and  cheapened  production 
is  the  great  essential  to  rise  of  wages.  An  intelligent  workman's  desire 
and  effort  for  more  and  more  to  enjoy,  are  necessary  conditions  provided 
by  nature,  the  same  as  life  and  sunshine.  The  struggle  is  to  get  things ; 
quickening  the  rate  of  using  them  up  is  easy.  Desire  for  more  is  of  little 
help  to  the  German's  wages  until  he  comes  to  America,  where  other  condi- 
tions afford  the  means  for  gratifying  it. 

More  Money  and  Shorter  Work  Day. — If  Professor  Gunton  and  oth- 
ers who  teach  that  the  standard  of  living  makes  the  rate  of  wages  (instead 
of  the  more  natural  view  that  the  rate  of  wages  makes  the  standard  of  liv- 
ing) could  induce  all  laborers  to  demand  at  once  a  raise  of  fifty  per  cent, 
and  at  the  same  time  to  increase  likewise  each  line  of  their  buying  for  con- 
sumption, rise  of  all  prices  from  increased  demand  might  reimburse  each 
employer  for  his  extra  payment  of  wages,  if  currency  were  provided  for  the 
added  need  of  money,  and  if  high  prices  did  not  curtail  too  far  the  buying 
of  other  classes.  But  would  people  have  any  more  goods?  If  they  could 
at  once  put  into  effect  improvements  by  which  every  laborer  added  fifty  per 
cent  to  his  product,  then  the  standard  of  living  would  be  raised  in  fact. 
Rise  of  wages  per  hour  by  shortening  the  work  day,  for  all  employers  in 
a  trade,  might  be  borne  by  them  if  higher  price  did  not  curtail  use  of  their 
goods.  If  the  shorter  day  applied  to  all  trades,  unless  men  worked  faster 
or  chronic  idlers  kept  busy,  all  kinds  of  goods  would  be  scarcer.  Because 
industries  improve  at  different  times,  and  in  differing  degrees,  real  and 
money  wages  rise  in  the  slow  and  irregular  way  illustrated  above  in  the 
text.  The  only  standard  of  living  with  which  to  raise  wages  (when  already 
as  high  as  profit  will  bear )  is  that  of  constant  striving  to  reach  that  work, 

25 


386  The  Plain  Facts  as  to  the  Tariff. 

and  that  skill,  in  which  one's  powers  will  bring  largest  return.     A  worker 
thus  makes  the  extra  product  he  gets  in  higher  pay. 

Does  Our  Labor  Get  Its  Full  Share  ? — Professor  Patten  (pages  64-70) 
assumes  that  when  free  traders  show  high  wages  to  be  due  to  the  efficiency 
of  the  American  workman,  not  to  protection,  they  mean  that  when  he  gets 
double  the  pay  of  the  European  he  himself  is  doubly  as  efficient — that  is, 
if  working  in  Europe  he  would  turn  out  double  the  product  of  workmen 
there.  On  this  assumption  it  is  argued  that  each  of  our  workmen,  under 
free  trade  (as  most  of  them  now  are),  would  earn  all  the  difference  by  his 
own  exertion — would  get  no  more  pay  per  unit  of  force  and  skill  than  if  he 
were  in  Europe  ;  and  hence  would  get  no  benefit  from  our  richer  mines, 
soil,  and  forests,  the  advantage  of  which  in  enlarging  product  would  fall  to 
undeserving  landholders  and  capitalists.  The  answer  to  this  is  that  nobody 
imagines  the  American  workman  could  do  in  Europe  double  the  work  of 
the  average  man  there.  Men  from  various  European  nations  keep  up  at 
once  in  America  with  the  usual  speed  of  work  here.  So  far  as  not  encour- 
aged to  greater  effort  by  higher  pay,  the  difference  in  wages  comes  from 
use  of  our  belter  machinery  and  cheaper  raw  materials.  A  fann  hand 
leaving  %\2  a  month  in  the  Pennsylvania  mountains  works  no  harder  on  the 
rich  prairies  of  Nebraska  for  $20.  It  is  protection  that  has  given,  by  means 
of  higher  prices  the  wage  worker  and  all  others  must  pay,  great  profits  to 
a  few  lumbermen  and  mine  owners  and  also  to  some  favored  manufacturers, 
but  which  in  this  broad  land  cannot  give  monopoly  gain  to  owners  of  farms. 
The  ingenuity  that  characterizes  Professor  Patten's  book,  inasmuch  as  it 
may  be  taken  as  the  best  effort  of  an  acute  mind,  only  settles  further  the 
hopeless  unsoundness  of  protection. 


CHAPTER  XIV. 

PROTECTION  AND  RECENT  PROSPERITY. 

Good  Men  Believe  in  Protection. — It  is  not  uncommon 
for  men  of  good  mind  and  motive  to  believe  in  doctrines 
that  are  wholly  wrong.  Conscientious  men  in  the  past, 
from  Saul  of  Tarsus  downward,  took  part  in  cruel  relig- 
ious persecutions,  and  many  noble  characters  fought  for 
American  slavery.  For  similar  reasons  good  men  be- 
lieve in  protection,  though  of  course  it  is  not  evil  to  an 
equal  degree.  To  them  it  is  the  orthodox  behef  in  which 
they  have  grown  up.  Some  perhaps  have  never  studied 
the  question  to  find  the  truth — only  to  defend  their  side. 
Loyalty  has  prevented  them  from  seeing  aught  but  its 
apparently  strong  points.  It  is  natural  that  a  certain 
able  thinker,  who  "is  perhaps  the  only  thorough-going 
protectionist  among  the  first-rate  economists,"  ^  is  a  pro- 
fessor in  Pennsylvania.  Preachers  in  the  South  just 
before  the  war  were  all  slavery  men.  No  other  kind  of 
preachers  could  have  hved  there.  Neither  have  any 
economists  but  those  who  advocate  protection  been  wel- 
comed by  the  prevailing  opinion  of  Pennsylvania. 

Yet  Would  We  Who  Criticise  do  Better  in  Their 
Places  ? — Many  good  people  will  agree  with  Mayor  Tom 
L.  Johnson  of  Cleveland,  who  said  in  Congress  that  there 
he  would  oppose  protection,  but  that  in  his  steel  manu- 
facture   he   would    gain    from  protection   all  he  could. 

^  New  England  Magazine,  Nov.  1899.  The  inference  is  not  that  he 
chooses  protection  for  the  sake  of  his  position,  but  that  he  was  appointed 
partly  for  the  sake  of  his  protective  belief. 

387 


3 88  TJie  Plain  Facts  as  to  the  Tariff. 

Whether  or  not  protection  is  given  manufacturers  in  ex- 
change for  political  support,  a  person  might  be  consid- 
ered over-conscientious  who  hesitated  to  take  full  advan- 
tage of  it,  whatever  the  loss  it  caused  to  a  public  grant- 
ing it  with  eyes  open.  It  is  not  robbery  when  maintained 
as  it  is  by  representatives  of  a  majority  of  the  people,* 

^  Many  Things  Allowable  in  Protective  Argument.  —  Henry  Carey, 
a  noted  American  economist  of  fifty  years  ago,  became  so  enamored  as  a 
manufacturer  with  protection,  and  worked  up  reasons  for  it  with  such  ob- 
vious effort,  that  later  economists  have  regarded  his  doctrines  with  a  feeling 
akin  to  amusement.  The  lectures  delivered  at  Harvard  in  1885  by  Pro- 
fessor R.  E.  Thompson,  of  the  University  of  Pennsylvania,  though  com- 
mended as  fair  and  able,  are  similar  to  the  ordinary  political  speech — open 
to  fatal  objection  in  nearly  every  argument,  and  depending  in  many  cases 
upon  surface  plausibility.  Blaine's  reply  to  Gladstone,  published  in  the 
North  Atne7-ican  Reviezv,  of  January,  1890,  and  circulated  as  a  masterpiece 
in  the  campaign  of  1896,  consists  largely  of  what  must  be  called  sheer 
quibbling,  and  makes  sweeping  assertions  that  are  absurd  to  a  student  of  the 
subject.  Coming  from  our  foremost  statesman  of  the  time,  doubtless  being 
required  of  him  by  party  exigencies,  it  indicates  that  all  things  are  allow- 
able in  politics. 

Is  Protection  Scientific?  —  In  Lalor's  Cyclopedia  of  Political  Econ- 
omy the  editor  inserted  after  the  article  on  protection  an  apologetic  note, 
stating  that  while  there  might  be  said  to  be  among  economists  a  consensus 
of  opinion  on  protection  and  free  trade,  and  that  his  cyclopedia  might  be 
expected  to  contain  only  such  matter  as  was  scientific,  the  article  on  protec- 
tion, though  at  variance  with  the  rest  of  the  book,  was  inserted  because  the 
subject  was  one  of  popular  controversy.  His  reason  for  explanation  would 
seem  good  if  the  article  as  a  whole  is  similar  to  its  closing  sentence — "  The 
marvel  is  that  a  doctrine  so  preposterous  [as  free  trade]  should  have  found 
lodgment  in  any  intelligent  mind."  An  example  of  the  ease  with  which 
protectionists  find  reasons  is  the  following  sentence  from  the  article  in  the 
Encyclopedia  of  Social  Reforms:  "In  1875  a  more  protective  tariff  was 
enacted,  and  prosperity  returned."  This  is  perhaps  the  only  case  in  which 
the  better  times  of  1879  are  connected  with  the  slight  changes  of  tariff  four 
years  earlier. 

Where  could  be  found  more  unmitigated  sophistry  than  in  the  two  follow- 
ing quotations  from  the  article  on  protection  in  Johnson's  Cyclopedia: 
"  Protection  appeals  to  men  on  the  side  of  their  duties,  free  trade  on  that  of 
their  interests."  "  Free  trade  teaches  a  person  to  look  out  for  self  as  a 
buyer,  and  tells  the  laboring  classes  to  shift  for  themselves."     The  duty 


Protection  and  Recent  Prosperity.  389 

An  Example  of  Men's  Unthinking  Acceptance  of  Doc- 
trines long  adhered  to  was  given  in  The  Independent  of 
December  6,  1900,  in  an  article  by  Hon.  John  W.  Fos- 
ter, formerly  Secretary  of  State,  and  the  eminent  diplo- 
matist who  represented  China  in  her  peace  negotiations 
with  Japan.  He  mentions  the  reciprocity  treaty  with 
Hawaii  as  having  been  "  quite  satisfactory  in  its  results," 
giving  the  United  States  an  almost  complete  monopoly 
of  Hawaii's  trade,  and  finally  resulting  in  peaceful  an- 
nexation. In  this,  if  annexation  is  not  counted  as  a 
consideration,  he  seems  to  assume  that  any  kind  of  trade 
or  industry  is  desirable,  without  much  regard  to  the  cost 
of  getting  it — to  the  net  profit  or  loss  in  the  end. 

Duties  Remitted  Were  a  Gift  to  Hawaiians.  —  Now 
what  are  the  specific  facts  of  American  trade  with  Ha- 
waii? By  admitting  Hawaiian  sugar  free  of  duty  from 
1876  to  1890  the  United  States  gave  outright  to  the 
sugar  producers  of  those  islands,  chiefly  Americans,  $^l,- 
898,978.  The  total  of  all  duties  remitted,  up  to  1893, 
was  1^54,834,703.  The  Hawaiian  value  of  all  goods  ad- 
mitted free  was  only  ;^i  15,329,915.  Though  probably 
not  intended  to  work  thus,  this  remission  of  duties  could 
have  had  no  other  effect.  The  Hawaiian  sugar,  being 
only  a  part  of  the  quantity  demanded  (one-eleventh  in 
1 891)  other  sugar  had  to  be  imported  into  the  United 
States  ;  and  as  the  latter,  by  reason  of  the  duty  upon  it, 
was  marketed  under  most  unfavorable  conditions,  its  nec- 
essarily high  price  became  the  price  of  all.  This  is  an 
economic  law  of  price.     By  asking  less  for  their  sugar 

must  be  that  of  smothering  one's  own  convictions,  and  loyally  swallowing 
what  the  party  finds  it  expedient  to  administer.  The  command  to  shift  is 
that  workers,  and  employers  too,  are  told  to  choose  from  the  good  things 
of  the  whole  world,  without  having  the  fruit  of  a  single  tree  forbidden. 


390  Tlie  Plain  Facts  as  to  the  Tariff. 

than  the  market  price,  made  high  by  the  tariff  against 
other  producers,  the  Hawaiians  would  simply  have  made 
a  gift  of  this  difference  to  the  buyer.  If  the  govern- 
ment had  collected  all  of  the  ;^43,898,978  in  revenue, 
consumers  of  sugar  would  have  paid  no  more  than  they 
did. 

Americans  Paid  $43,000,000  and  Received  $10,000,000. 
As  the  total  of  all  exports  from  the  United  States  into 
Hawaii  for  the  fourteen  years  ending  with  1890  aggre- 
gated only  ;^4i,673,33i,  it  is  easy  to  form  an  estimate 
of  America's  gains  from  the  Hawaiian  trade  mentioned 
as  gratifying.  At  a  profit  of  25  per  cent  on  shipment 
valuation,  and  included  in  it,  to  the  owners  of  these 
exports  when  thus  valued  (the  exporting  profit  is  con- 
sidered in  the  note  below),  the  people  of  the  United 
States  obtained  from  the  Hawaiians  by  trade  the  net  sum 
of  ^10,418,333,  while  paying  to  them  ,^^43, 898, 978,  be- 
sides their  profit  on  sugar  at  the  net  price  other  foreign 
producers  realized,  and  not  considering  the  ;^  11,000,000 
of  duties  remitted  on  other  articles.  For  this  net  loss 
of  ;^33,ooo,ooo  there  was  no  return  unless  it  is  supposed 
the  Hawaiians  could  not  have  produced  sugar  without 
it,  and  that  sugar  producers  elsewhere  would  not  have 
made  up  Hawaii's  small  fraction  of  the  world's  product 
without  raising  price.  To  the  shipping  value  of  the 
staple  American  goods  exported,  the  stimulus  given  to 
Hawaiian  demand  by  remission  of  duties  cannot  be  sup- 
posed to  have  added  perceptibly.  And  so  far  as  the 
producers  of  these  goods  could  have  obtained  profit 
from  them,  or  from  the  capital  and  labor  in  them,  by 
selling  in  Hawaii  without  reciprocity,  and  by  selling  else- 
where, even  the  ^10,418,333  must  be  reduced  as  not  due 
to  the  Hawaiian  treaty.     This  was  a  remarkable  case  of 


Protectio7i  and  Recent  Prosperity.  391 

one-sided  trade.  A  strong  feeling  of  nationality  would 
be  required  to  prevent  any  people  from  desiring  annexa- 
tion after  such  an  experience  —  ended  by  the  tariff  law 
of  1 890,  which  admitted  all  raw  sugar  free  of  duty,  and 
gave  a  bounty  to  sugar  production  at  home.^ 

It  is  Only  for  the  Net  Profit  That  Legitimate  Trade 
Exists.  —  Money  received  below  the  profit  point  is  no 
better  than  the  same  amount  of  money  previously  paid 
out  for  the  article  sold.  To  a  person,  trade  without 
profit  is  not  healthful  exercise,  but  generally  ruinous  — 
wasting  his  time,  wearing  out  his  capital,  and  weakening 

^  Employment  Bought  for  People  by  the  Government. — The  figures 
given  here  are  taken  from  a  report  of  S.  G.  Brock,  chief  statistician  under 
President  Harrison,  dated  Feb.  20,  1 893.  In  a  Senate  report  of  1893-94 
a  profit  to  the  United  States  from  Hawaiian  trade  was  shown  by  counting 
freights  both  ways  to  American  vessels,  commissions  to  agents,  merchants' 
profits  on  imports  and  exports,  interest  on  capital,  increased  value  of 
American  property  in  Hawaii,  etc.  To  count  these  as  a  benefit  of  the  re- 
mission of  duties,  it  must  be  supposed  the  labor  and  capital  would  other- 
wise have  been  idle.  Surely  they  might  have  found  some  way  of  getting 
a  living  from  our  illimitable  resources,  in  the  world's  demand  for  products, 
without  having  employment  bought  for  them  by  the  government,  at  an 
average  annual  cost  of  $3,000,000. 

Protectionists  Now  More  Ready  to  Compromise. — Yet  Mr.  Foster, 
in  the  following  words  quoted,  shows  plainly  the  trend  of  thought  among 
protectionists  toward  some  free  trade  ideas  :  "  In  fact  it  has  come  to  be  a 
necessity  to  find  new  and  enlarged  markets  for  our  agricultural  and  manu- 
factured products.  We  cannot  maintain  our  present  industrial  prosperity 
without  them.  Our  protective  tariff  system  has  so  stimulated  overproduc- 
tion that  we  are  dependent  upon  foreign  consumption  for  a  large  part  of  the 
output  of  our  farms  and  factories."  But  it  is  to  prevent  agricultural  over- 
production that  protection  has  long  been  advocated,  with  the  claim  that  it 
keeps  men  employed  in  manufacturing  who  otherwise  would  have  to  follow 
farming.  Undoubtedly  it  does  cause  overproduction  in  manufacturing,  less 
perhaps  by  increase  of  quantity  produced,  through  its  artificial  stimulus, 
than  by  narrowing  the  field  in  which  foreigners  are  able  and  willing  to 
buy.  In  justice  to  Mr.  Foster  it  must  also  be  stated  that  his  indorsement 
of  protection  was  incidental  and  inferential.  The  purpose  of  his  article 
was  to  recommend  freer  trade  through  reciprocity. 


392  T]ie  PI  am  Facts  as  to  the  Tariff. 

his  self-confidence  and  business  ability.  Among  indi- 
viduals over-anxiety  to  make  sales  is  ground  for  sus- 
picion that  quality  is  poor  and  profit  high.  A  seller  of 
solid  values  does  not  need  to  give  free  an  armful  of 
crockery  with  a  pound  of  baking  powder.^ 

Does  Protection  Make  Good  Times,  and  Tariff  Reform 
Hard  Times  ? — Similar  unthinking  acceptance  of  doctrines 
considered  orthodox  gave  rise  to  the  common  habit  of 
attributing  all  business  depression  to  low  tariff  for  reve- 
nue, and  all  growth  and  prosperity  to  high  tariff  for  pro- 
tection. It  is  much  easier  for  people  to  give  way  to  the 
tariff  hocus-pocus,  blindly  believing  that  every  change 
downward  makes  hard  times,  and  every  change  upward 
makes  good  times,  than  to  endure  the  close  thought 
necessary  to  understand  the  truth. 

Each  of  the  Important  American  Panics  —  namely, 
those  of  1837,  1857,  1873  and  1893 — was  chiefly 
caused  by  disorders  in  the  money  circulation.^  But  the 
fact  that  manufacturers  in  1893  did  curtail  their  opera- 
tions for  fear  of  tariff  reduction  by  the  Cleveland  admin- 
istration, is  no  credit  to  protection.  That  the  prospect 
of  even  a  slight  reduction  of  duties  disorders  business  for 
a  time,  shows  that  protection  is  depended  upon  to  add  to 

'  Nor  does  it  seem  sound  that  with  the  tariff  the  American  people  should 
continue  to  expose  themselves  to  levies  of  tribute  by  the  trusts,  in  order 
that  industries  may  be  made  strong  to  invade  foreign  markets.  Any  in- 
dustry that  meets  foreign  competition  by  selling  goods  abroad  acts  suspi- 
ciously  when  it  still  clings  to  its  protection.  If  its  values  at  home  are  always 
fully  equal  to  those  it  sells  abroad,  it  ought  not  to  fear  foreign  competition 
in  its  home  market. 

*  There  was  depression  at  or  near  these  times  in  other  countries  also, 
especially  England,  caused  by  reaction  from  previous  excess  in  speculating 
and  producing.  The  depression  of  1893  was  worst  in  Australia,  failure 
coming  then  to  about  half  of  that  country's  banking  capital.  The  impor- 
tant waves  of  prosperity  and  depression  generally  affect  most  of  the  com- 
mercial world. 


Protection  and  Recent  Prosperity.  393 

selling  price,  inconsistently  with  the  claim  that  under 
protection  industries  grow  and  lower  price  from  home 
competition.  An  old  industry  to  which  protection  is 
still  necessary  is  either  out  of  place  in  America,  or  has 
not  made  good  use  of  its  opportunity,  under  the  people's 
gift  allowance,  to  reach  self-support. 

For  the  Common  Claim  that  Protection  Made  America 
Great,  no  one  would  attempt  to  give  definite  reasons  to 
an  audience  of  thinking  men,  familiar  with  the  subject 
and  disposed  to  regard  it  critically.  The  people  who 
came  to  America  would  have  developed  great  wealth 
from  our  resources  under  any  kind  of  a  government  that 
afforded  reasonable  security  to  life  and  property.  En- 
couraged by  unprecedented  net  product,  they  would  have 
'gone  forward  undaunted  under  an  annual  tax  of  ten  dol- 
lars per  head  to  offer  sacrifices  to  heathen  gods.  This, 
if  unavoidable,  they  would  have  borne  without  a  murmur, 
as  they  bear  floods  and  droughts.  Three  times  that  tax 
they  would  have  borne  cheerfully  if  hidden  from  view  by 
being  added  to  prices,  through  a  tariff  supposed  to  make 
business.^ 

•Troubles  are  Light  to  People  Agreeably  Occupied. — Evils  and 
troubles  are  a  matter  of  little  consequence  to  people  who  are  unconscious 
of  them,  especially  when  made  unconscious  by  absorption  in  agreeable  pur- 
suits. No  doubt  the  Spartans,  delighting  in  war,  were  happy  in  their 
monstrous  system  of  brushing  aside  family  ties  for  their  one  purpose  of 
training  up  soldiers.  Similarly,  the  Germans  of  to-day,  in  their  intense 
zeal  for  the  Fatherland,  bear  cheerfully  taxation  and  government  inter- 
meddling that  would  be  unendurable  if  they  had  ever  lived  under  a  more 
liberal  system.  Every  stranger  in  a  town  is  known  and  watched  by  the 
police,  every  workman  is  known  and  enrolled,  and  even  a  servant  girl 
changing  her  place  of  employment  is  liable  to  be  called  to  account  by  some 
representative  of  the  government.  The  ardently  patriotic  French,  as  was 
brought  out  in  the  Dreyfus  trial,  cheerfully  bear  likewise  the  waste  of 
enough  time  watching,  reporting  on,  and  guarding  one  another  to  increase 
materially  their  annual  product  of  wealth. 


394  1^^^  Plain  Facts  as  to  the  Tariff. 

Rich  Resources  and  Strong  People. — Such  mines,  for- 
ests, and  soil  as  we  have  in  America  would  have  been 
turned  into  wealth  in  the  last  forty  years  if  at  the  begin- 
ning of  that  short  period  we  had  had  no  government  at 
all,  and  a  population  of  roaming  savages.  Local  vigi- 
lance committees  of  adventurers,  as  in  the  early  days  of 
California,  would  have  enforced  justice  at  first,  and  then 
foreign  nations  would  have  protected  their  settlers  as  in 
Africa.  Enterprising  people  and  rich  resources  of  nature 
are  what  make  wealth.  Reliable  government  is  neces- 
sary very  soon,  and  wise  taxation  is  important,  so  im- 
posed as  to  retard  business  the  least,  and  not  to  build  up 
monopolies  ;  but  the  best  system  of  trade  encouragement 
possible  on  earth  could  not  develop  wealth  and  civiliza- 
tion from  a  dull  people  in  a  poor  land.  And  to  prevent 
increase  of  wealth  among  a  thrifty  people  in  a  rich  land 
would  require  governmental  or  other  conditions  that  were 
bad  indeed. 

The  Amount  of  Insincerity  That  Good  People  Will  Bear 
in  politics  is  astonishing,  when  compared  with  the  truth- 
fulness required  in  business.^  From  the  highest  to  the 
lowest  this  insincerity  is  expected  for  party  expediency, 
suggesting    strange    ideas    of    the   fairness    and   intelli- 

'  Why  We  Have  Passed  Great  Britain.  —  Leading  statesmen  have 
long  been  in  the  habit  of  attributing  to  protection  our  passing  ahead  of 
Great  Britain  in  growth  and  wealth,  instead  of  to  our  dozen  new  states  to 
be  developed,  all  teeming  with  resources,  and  to  our  half  century's  inflow 
of  men  and  capital  from  abroad,  against  Great  Britain's  steady  outflow  of 
these  elements  of  progress.  The  London  Spectator  said  about  thirty  years 
ago  :  *'  Sooner  or  later  we  have  no  doubt  at  all  that  America,  with  her  vast 
natural  resources,  both  in  fuel  and  land,  will  far  outrun  us  in  the  race  of 
commercial  and  manufacturing  enterprise."  Great  Britain's  falling  behind 
America  will  be  about  the  same  as  Connecticut's  falling  behind  Illinois. 
With  our  resources  and  our  people,  to  have  done  much  less  than  we  have 
done  would  have  been  discreditable.  Age  is  usually  a  disadvantage.  In 
this  country  to  call  a  place  an  old  town  suggests  a  dead  town. 


Protection  and  Recent  Prosperity.  395 

gence  of  those  addressed.  A  candidate  of  lofty  mind 
and  character  was  applauded  day  after  day  by  visiting 
clubs,  when  he  spoke  of  the  depression  of  1893-97  as  if 
it  had  all  been  caused  by  Cleveland's  election  and  the 
small  reduction  of  duties  under  the  Wilson  law  of  1894. 
For  party  expediency,  even  when  addressing  intelligent 
business  men,  it  was  proper  to  leave  unmentioned  the 
deeper  causes  that  would  inevitably  have  brought  hard 
times  if  the  tariff  question  had  not  arisen.  Among  these 
causes  were  the  threatened  drop  from  the  gold  standard  to 
a  silver  standard  worth  half  as  much  ;  the  reaction  from 
the  excessive  building  and  speculative  activity  of  1887- 
92  ;  and  a  decrease  in  total  value  of  grain  products,  by 
reason  of  reduced  crops  and  lower  prices,  from  ^1,659,- 
000,000  in  1891,  to  ;^ 1, 2 3 2, 000, 000  in  1892,  and  ^1,041, - 
000,000  in  1893.  Immediately  after  the  election  of 
1892,  as  much  was  known  as  later  of  the  tariff  revision 
probable  in  1894  ;  but  business  did  not  decline  until  con- 
tinued gold  shipments  in  the  earlier  months  of  1 893 
shook  confidence  in  the  currency  and  brought  on  the 
May  bank  failures. 

To  Show  the  Truth  or  to  Hide  It?— The  striking 
difference  between  the  political  discussion,  intended 
chiefly  to  hide  the  truth,  and  an  inquiry  after  the  real 
causes  of  the  panic,  whatever  they  were,  may  be  seen 
by  comparing  the  one-sided  campaign  circulars  with 
the  masterly  article  in  the  Review  of  Reviews  of  Novem- 
ber, 1899,  written  by  Hon.  Thomas  L.  James,  now  a 
leading  bank  president  of  New  York,  who  won  a 
high  reputation  as  Postmaster-General  under  President 
Garfield.  He  simply  mentioned  the  expected  tariff  re- 
vision as  one  of  the  many  causes  of  the  panic,  each  of 
which  he  set  forth  in  detail. 


396  TJie  Plain  Facts  as  to  the  Tariff. 

What  Caused  the  Good  Times  Since  1897?  —  With  a 
similar  effort  to  attribute  all  good  to  protection,  some 
political  speakers  have  talked  of  the  good  times  since 
1897  as  if  they  were  caused  by  the  Dingley  tariff  law. 
These  good  times  could  not  have  been  prevented  if  every 
vestige  of  protection  had  been  suddenly  swept  from  the 
statute  book,  and  needed  revenue  raised  by  duties  on  tea, 
coffee,  and  other  things  not  produced  in  the  United 
States.^  The  causes  of  present  good  times  were  many 
and  potent. 

1  Such  Would  Be  a  "  Tariff  for  Revenue  Only."  —  This  term  would 
also  include  low  duties  on  any  article,  though  incidentally  protective  in 
raising  its  price,  if  the  purpose  were  revenue,  not  protection.  A  revenue 
tariff  has  been  the  kind  always  contended  for  by  the  so-called  free  trade 
party  in  America.  Absolute  free  trade  is  impracticable  by  reason  of  the 
need  for  revenue.  No  other  form  of  taxation  is  so  light  on  the  people,  so 
unnoticed  and  so  easy  to  collect,  as  a  low  duty  on  commodities  not  pro- 
duced at  home.  Then  every  dollar  paid  by  the  people,  through  the  addi- 
tion of  the  tariff  duty  to  selling  price,  goes  to  the  government,  there  being 
no  home  producers  to  add  the  duty  to  their  price  also. 

Revenue  Duties  on  Tea  and  Sugar.  —  When  not  enough  suitable 
revenue  commodities  used  chiefly  by  the  rich  are  imported  for  taxation 
needs,  the  duty  must  be  levied  on  such  commodities  as  tea,  as  our  govern- 
ment did  in  1898  for  war  expenses.  There  being  no  protection  involved, 
this  duty  was  quickly  settled  without  controversy.  Though  its  rate  was 
only  10  cents  a  pound,  it  raised  $15,000,000  during  its  first  two  years. 
No  poor  man  ought  to  complain  of  his  share  of  such  a  tax,  especially  when 
temporary,  in  view  of  the  blessings  of  government  he  enjoys,  with  little 
other  necessary  payment  of  taxes  that  yields  so  much  in  proportion  to  the 
burden. 

British  Duties  are  almost  wholly  for  revenue  alone.  In  some  cases 
they  are  made  protective  to  British  industry  by  being  fixed  higher  on  a 
commodity,  as  tobacco,  when  finely  manufactured  than  when  imported  in 
cruder  fonns.  (Stebbins,  30.)  But  the  aim  has  been  to  remove  the  pro- 
tection from  home  producers  of  a  dutiable  article  by  imposing  on  them  an 
equal  excise  tax,  like  our  stamp  tax  on  liquors.  The  system  of  the  British 
has  been  spoken  of  as  having  been  cleared  of  "  every  vestige  of  protection." 
(Taussig,  P.  S.  Quarterly,  1894,  606. )  Their  duties  are  levied  chiefly  on 
tobacco  and  fine  liquors,  classed  as  luxurious  or  injurious,  and  on  tea  and 
coffee.     In  1901  they  put  a  duty  on  sugar,  to  raise  revenue  for  the  Boer 


Protection  and  Recent  Prosperity.  397 

1.  The  Danger  of  a  Drop  to  the  Silver  Standard  had 

been  removed  by  Mr.  McKinley's  election,  and  by  the 
increase  of  the  world's  gold  production  from  202  millions 
of  dollars  in  1896  to  236  in  1897  and  286  in  1898. 
Previously  its  production  had  been  nearly  stationary. 
Increase  of  gold  encouraged  large  building  and  indus- 
trial investments,  promising  gradually  rising  prices  for 
the  future. 

2.  People  Resumed  Their  Previous  Rate  of  Buying.  — 
During  the  hard  times  people  bought  lightly,  earning 
little  and  saving  to  pay  debts,  and  using  up  the  clothing 
and  furniture  they  had  ;  while  manufacturers  and  mer- 
chants kept  their  stocks  low,  on  account  of  the  weak 
demand.  This  depletion  of  dealers'  stocks,  and  of  con- 
sumers' supplies,  made  a  steady  demand  for  new  goods 
when  confidence  was  restored,  and  when  many  people 
resumed  their  usual  rate  of  buying.  Factories  of  every 
kind  were  started,  and  many  new  ones  erected,  supply- 
ing previously  idle  men  with  wages,  whose  increased 
spending  added  further  to  demand  for  goods,  and  for 
labor  to  make  them. 

3.  Population  Increased  About  Five  Millions  during  the 
four  and  a  half  years  of  hard  times.  At  Edward  Atkin- 
son's estimate,  on  the  census  of  1880,  of  ten  billion 
dollars'  worth  of  goods  consumed  yearly  by  fifty  million 
people,  the  increase  of  population  required  at  the  end  of 
1897  a  full  billion  dollars'  worth  of  supplies  more  than 
were  required  per  year  in  1892.  During  these  five  years 
there  was  little  increase  of  factories  and  dwelling  houses, 

war.  Until  late  years,  with  no  home  product  except  a  little  from  Louis- 
iana, ours  was  a  revenue  duty  on  sugar.  Our  present  sugar  duties  are  dis- 
cussed in  the  next  chapter.  The  new  Porto  Rican  revenue  tariff  is  working 
very  successfully,  supporting  the  government  mainly  with  duties  and  ex- 
cises on  injurious  and  luxurious  consumption.    [Public  Opinion,  1902,  p.  8. ) 


398  TJic  PI  am  Facts  as  to  the  Tariff. 

nothing  to  compare  with  the  increase  of  people ;  and 
scarcely  any  increase  of  railroad  equipment. 

4,  By  Reason  of  Crop  Failure  in  Europe,  raising  prices 
here,  and  of  unusually  large  crops  to  acreage  in  Amer- 
ica, the  total  value  of  grain  and  cotton  rose  from  1,195 
millions  in  1895  to  1,264  i"  1896,  1,440  in  1897,  and 
1,476  in  1898;  giving  to  farmers  each  year  a  large 
excess  of  money  to  pay  off  debts,  and  to  spend  for  com- 
modities, and  giving  the  railroads  all  the  freight  business 
they  could  handle.  Their  need  for  additional  equipment 
crowded  with  orders  the  car  and  locomotive  works,  these 
in  turn  the  mills  making  bar  and  sheet  steel,  and  these 
the  furnaces  and  mines. 

5.  The  Business  Prosperity  of  Europe  and  Her  Colonies, 
beginning  a  year  or  more  before  that  of  America,  and 
caused  partly  by  inflow  of  South  African  gold,  gave  our 
manufacturers  a  new  demand  from  abroad,  foreign  mills 
being  unable  to  supply  all  their  customers  promptly,  a 
condition  caused  largely  by  the  long  strike  of  British 
machinists  in  1897.  American  exports  of  manufactures 
rose  from  183  millions  in  1895  to  228,  277,  291,  340  and 
434  respectively,  in  the  five  years  next  following.  This 
foreign  prosperity  has  therefore  added  immensely  to 
American  trade,  our  total  exports  rising  from  883  millions 
in  1896  to  1,050,  1,231,  1,227,  1,394,  and  1,487  in  the 
years  following.  The  fact  that  foreigners  wanted  to  buy, 
had  more  to  do  with  our  trade  than  that  we  could  pro- 
duce to  sell.  But  our  help  to  their  trade  fell  off,  our 
imports  changing  from  779  millions  in  1896  to  764,  616, 
697,  and  849  in  the  years  following.  Instead  of  the 
Dingley  law  causing  the  increase  in  exports  of  manufac- 
tures, the  increase  under  the  Wilson  law  after  June  30, 
1896,  and  also  for  the  previous  year,  was  in  each  case 


Protection  a7id  Recent  Prosperity.  399 

three  times  that  of  the  next  year,  mainly  under  the  Ding- 
ley  law,  and  equal  to  that  of  1899.  For  the  year  to  June 
30,  1 90 1,  there  was  a  decline  of  21  millions,  and  for  the 
calendar  year  of  nearly  50  millions.  In  total  exports  of 
all  kinds,  it  was  only  for  1895  that  there  was  a  decline 
under  the  Wilson  law  (85  millions  regained  next  year); 
while  they  fell  off  183  millions  in  the  year  to  June  30, 
1893,  under  the  McKinley  law,  against  an  increase  of  168 
millions  in  the  year  to  June  30,  1897,  under  the  Wilson 
law.^ 

6.  The  Spanish  War  in  1898  Gave  an  Impetus  to  Indus- 
trial Activity  that  had  already  started.  The  original  ^50,- 
000,000  appropriation,  and  the  1^250,000,000  loan,  were 
spent  largely  for  ships  and  supplies  that  would  not  have 
been  bought  if  there  had  been  no  war.  The  chartering 
of  ships  and  purchase  of  supplies  for  the  Philippine  war 
have  continued  up  to  the  present  time.  The  addition  of 
fifty  or  sixty  thousand  men  (three  times  as  many  for  a 
while  in  1898)  to  the  old  regular  army,  removed  that 
number  of  strong  men  from  work  at  home,  thus  making 
places  for  an  equal  number  of  the  unemployed,  and  con- 
tributing to  the  rise  in  wages.  The  Boer  war  in  South 
Africa  has  also  increased  American  exports',  especially 

'  Lowering  Our  Tariff  May  Not  at  Once  Induce  Foreigners  to  Buy, 

nor  raising  it  drive  their  buyers  away.  They  buy  when  they  want  goods. 
Just  now  the  Germans  might  not  at  once  enlarge  their  buying  of  us  if  we 
lowered  our  tariff  greatly.  In  dull  times  anywhere  producers  and  retailers 
try  in  vain  to  increase  sales  by  lowering  price  almost  to  cost.  In  Gunton^ s 
Magazine  for  December,  1 901,  the  editor  argues  against  reciprocity  by 
showing  that  under  the  McKinley  treaties  after  1892  our  sales  fell  off, 
while  they  have  increased  largely  under  the  Dingley  high  tariff  of  1897. 
As  he  truly  says,  reciprocity  in  the  past  has  increased  our  imports  most ; 
but  it  is  just  as  true  that  our  buying  eventually  leads  and  enables  foreigners 
to  buy  of  us  as  it  is  that  a  tariff  shutting  out  their  goods  completely  would 
soon  destroy  our  export  trade.  This  was  the  main  idea  of  Mr.  McKinley' s 
last  speech. 


400  The  Plain  Facts  as  to  the  Tariff. 

horses  and  army  food,  and  at  first  raised  British  wages, 
though  its  length  and  heavy  cost  have  now  become 
serious  to  British  taxpayers,  checking  enterprise  and 
personal  consumption. 

7.  Business  Would  Have  Improved  Without  Special 
Causes.  —  The  earlier  movement  toward  a  return  to  nor- 
mal buying  and  normal  consumption,  without  regard  to 
the  cause  of  the  movement  (whether  it  came  from  studied 
surveys  of  the  situation,  or  simply  from  chance  desires 
to  buy  goods)  tended  naturally  toward  a  complete  rees- 
tabHshment  of  normal  conditions  of  trade.  By  1897, 
after  four  years  of  depression,  during  which  the  earth 
yielded  its  products  as  before,  and  people  had  their  usual 
wants,  the  removal  of  the  silver  scare  would  doubtless 
have  led  gradually  to  fair  prosperity  if  there  had  been 
no  other  specially  favorable  causes. 

What  Remains  for  the  Tariff  to  Have  Caused?  —  With 
all  these  causes  of  business  activity  and  high  profits  — 
demand  for  products  of  one  industry  extending  to  the 
others  making  its  machines  and  materials,  and  so  on 
over  the  field  —  it  is  not  surprising  that  American  in- 
dustry has  recently  enjoyed  prosperity  unprecedented. 
When  put  forward  as  one  of  its  causes,  most  of  which 
came  by  chance  so  far  as  America  is  concerned,  the 
slight  tariff  changes  of  1897  appear  ridiculous. 

The  Duty  on  Wool.  —  The  duty  of  1 1  cents  a  pound 
placed  upon  free  wool  raised  prices  and  benefited  wool 
growers.  But  the  value  of  the  wool  product  to  the 
producers  in  1898,  not  over  ;^5o,ooo,ooo,  against  a  total 
of  nearly  $2,000,000,000  for  grain,  cotton,  hay,  tobacco, 
and  potatoes,  would  indicate  that  a  very  small  portion 
of  the  people's  buying  is  done  with  proceeds  of  wool. 
In  Ohio,  which  comes  first  in  wool,  the  Qgg  product  is 


Pfotcction  and  Recent  Prosperity.  401 

said  to  be  worth  more.  Perhaps  the  duty  on  wool  is  a 
cause  of  the  depression  in  woolen  manufacturing,  con- 
tinuing through  the  good  times,  and  often  mentioned  in 
Dun's  trade  reports.  A  leading  statesman  in  1894, 
speaking  in  Michigan,  made  a  happy  hit  by  saying  wool 
was  then  within  9  cents  of  being  free.  In  1901  it  was 
down  to  1 1  cents  a  pound,  despite  the  general  good  times. 

On  Lumber  and  Hides.  —  The  duty  oi  $2  per  1,000 
feet  on  lumber,  admitted  free  under  the  Wilson  law,  has 
probably  given  employment  to  no  additional  Americans, 
nor  increased  their  wages,  in  the  world-wide  demand  for 
building  materials.  More  probably,  it  was  partly  the 
cause  of  the  excessive  prices  that  checked  building  in 
1 899,  and  that  retarded  a  rise  of  wages  in  building  trades. 
The  1 5  per  cent  duty  on  raw  hides,  previously  free  for 
twenty-five  years,  added  materially  to  the  income  of  very 
few,  except  the  great  cattle  raisers  and  meat  packers, 
who  had  all  the  purchasing  power  they  could  use.  This, 
and  the  increase  of  the  duty  on  leather  from  lo  to  20 
per  cent,  probably  benefited  stock  raisers,  butchers,  and 
tanners  less  than  it  harmed  manufacturers  of  leather 
products. 

Tin-Plate,  Salt,  and  Soda  Ash.  —  The  increase  of  the 
tin-plate  duty  from  a  cent  and  a  fifth  to  a  cent  and  a 
half  per  pound  gave  the  trust  a  trifle  more  leverage,  but 
the  American  product  was  fast  displacing  the  foreign 
before  1897  under  the  lower  duty.  The  home  product 
more  than  doubled  between  1895  and  1897,  and  imports 
fell  off  by  more  than  half  The  duty  of  8  cents  per  100 
pounds  on  free  salt  could  not  have  helped  business  much. 
The  value  of  all  imported  was  only  ;^745,743  in  1896 
(;^62 5,863  in  1900).  The  duty  of  three-eighths  of  a  cent 
per  pound  on  soda  ash  is  said  to  have  given  employ- 
26 


402  TJie  Plain  Facts  as  to  the  Tariff. 

ment  to  several  thousand  men  in  New  York  state  and 
Michigan. 

No  Other  Item  of  Change  "Worth  Mentioning  could 
probably  be  pointed  out.  On  a  few  other  important 
commodities  the  duty  was  raised,  but  it  was  highly  pro- 
tective before.  Very  likely  far  less  than  one-fiftieth  of 
the  population  received  direct  benefits  in  purchasing 
power  from  the  tariff  changes  of  1897.  These,  and  in- 
direct benefits,  from  increased  buying  by  wool  growers 
and  others  favored,  must  have  been  overbalanced  by  the 
harm  to  manufacturers  and  their  men  of  having  to  pay 
more  for  materials — wool,  lumber,  and  leather  ;  and  by 
the  effect  of  the  tariff's  raise  of  prices  to  weaken  pur- 
chasing power  among  the  great  unprotected  majority.^  A 
carpet  manufacturer  was  recently  reported  to  have  said 
that  a  profitable  export  trade,  which  now  is  entirely 
beyond  his  reach,  might  be  utilized  if  coarse  wools  were 
admitted  free  of  duty,  giving  him  as  cheap  materials  as 
his  foreign  competitors. 

A  Poor  Opinion  of  American  Skill.  —  It  seems  an  unjust 
estimate  of  America's  industrial  skill  and  business  capac- 
ity, as  stated  repeatedly  —  with  her  world-surpassing 
machinery  equipment,  home  market,  and  variety  of  re- 
sources—  to  doubt  the  success  of  any  proper  industry, 

'  How  Protection  Lessens  Employment.  —  Dun^s  Review  of  April 
26,  1902,  stated  that,  urgent  buying  of  steel  products  abroad  by  many  Amer- 
icans having  raised  foreign  prices,  the  duty  and  the  freight  made  steel  thus 
obtained  very  expensive  ;  and  that  it  was  feared  some  construction  enter- 
prises in  this  country  would  be  abandoned.  But  undoubtedly,  because  of 
high  prices  for  materials,  construction  and  production  to  a  total  many  times 
larger  were  never  undertaken.  In  this  way,  in  a  series  of  years,  the  high 
tarift  prevents  much  more  employment  than  it  makes,  and  hence  lessens 
the  people's  stock  of  useful  things.  The  same  effects  are  also  caused, 
under  high  protective  prices,  by  the  people's  buying  and  consuming  less  in 
many  lines. 


Protection  and  Recent  Prosperity.  403 

with  high,  low,  or  no  protection,  in  the  unprecedented 
demand  prevaiHng  during  the  last  four  years  on  every 
continent.  If  other  nations  had  been  less  busy,  our 
tariff  barrier  might  have  been  of  more  use. 

It  was  Settling  That  the  Tarijff  Needed.  —  The  fact  is 
that  what  the  tariff  needed  in  1 897  was  settling.  It  was 
already,  though  called  free  trade  in  the  loose  language 
of  politics,  a  highly  protective  law  compared  with  the 
tariff  of  1862.'  If  its  protective  features  had  been  left 
untouched  as  fixed  in  1894,  and  needed  revenue  raised 
by  duties  on  such  commodities  as  tea  and  coffee,  who 
can  doubt  that  a  settling  of  the  question  by  reenacting  the 
old  law,  changed  in  name  from  Wilson  to  Dingley, 
v/ould  have  affected  business  more  favorably  than  it 
was  ?  If  the  trouble  with  Spain  had  come  a  year  ear- 
lier, the  tariff  question  might  have  been  dropped  with- 
out action,  to  turn  attention  to  the  war.  If  so,  the  law 
then  in  force  having  been  enacted  by  the  tariff  reform 
party,  though  largely  amended  by  protectionists,  trou- 

1  Average  Rate  of  Different  Tariffs. — Under  the  Wilson  tariff  of  1894 
the  average  rate  collected  in  1895  on  all  dutiable  imports  was  4I.75  per 
cent  of  their  value  abroad.  Under  the  so-called  free  trade  tariff  of  1857 
this  rate  fell  lowest  in  1861,  to  18.84  P^r  cent.  It  was  32.62  per  cent  in 
1862  under  the  Morrill  tariff,  which,  though  enacted  mainly  for  revenue,  as 
shown  by  the  discussion  over  it  in  Congress,  is  regarded  as  having  estab- 
lished the  protective  policy.  The  highest  average  under  the  Walker 
revenue  tariff  of  1846  was  27.38  per  cent  in  1852.  Under  the  war  tariffs 
this  average  rose  highest  in  1869,  to  48.69  per  cent.  In  1830  it  was 
61.69  per  cent.  It  rose  highest  of  all  in  1813,  to  69.03  per  cent,  but  fell 
to  6.84  per  cent  in  1815,  wholly  by  changes  in  quantities  of  goods  imported. 
(Roberts,  127.)  Under  the  Morrison  tariff  of  1883  this  average  rose  high- 
est in  1887,  to  47.10  percent;  under  the  McKinley  law  of  1890  to 
50.06  per  cent  in  1S94;  and  under  the  Dingley  law  of  1897  to  50.21  per 
cent  in  1899.  Specific  duties,  being  a  fixed  sum  per  pound  or  yard,  are 
simpler  to  collect  than  ad  valorem  duties  of  a  percentage  on  value.  But 
specific  duties  are  desired  by  protected  interests  because  as  price  falls  the 
duty  with  them  becomes  higher  and  higher. 


404  TJie  Plain  Facts  as  to  the  Tariff. 

blesome  agitation   of  this   question   might  have  ceased 
for  a  long  time. 

Future  Uncertainty  Checks  Enterprise.  —  A  business 
capable  of  self-support  can  prosper  without  special  favor, 
but  ordinarily  it  cannot  without  certainty  as  to  the  gov- 
ernment's policy.  For  this  reason  an  approaching  change 
of  the  tariff,  either  upward  or  downward  in  rates,  causes 
business  men  to  delay  extensive  building  or  buying,  un- 
til the  proposed  change  has  been  completed,  and  its 
effects  have  been  seen  in  prices  and  trade.  Despite  the 
great  promises  made  in  1896  of  what  higher  protection 
would  do  for  industry,  and  despite  the  removal  of  the 
silver  danger,  manufacturers  seemed  as  much  afraid  of 
tariff  revision  upward  in  1897  as  they  were  afraid  of  its 
revision  downward  in  1893.  Thirteen  months  after  Mr. 
McKinley's  election,  with  two  seasons  of  large  crops 
here  and  of  shortage  abroad,  a  prominent  protectionist 
of  Jackson  said :  "  Well,  confidence  [in  money]  has  re- 
turned, if  prosperity  hasn't."  There  was  not  much  im- 
provement of  industry  until  the  close  of  1897.  After 
reduction  or  removal  of  its  protective  duty,  settling  the 
agitation,  an  industry  will  adjust  itself  to  its  new  condi- 
tions, though  undesired  and  protested  against,  and  pro- 
ceed at  once  to  make  the  best  of  them,  while  before  the 
settlement  it  must  wait  to  see  which  course  to  take, 
avoiding  future  contracts  as  far  as  practicable. 


CHAPTER   XV. 

THE    TARIFF    QUESTION    AS    IT    STANDS    TO-DAY. 

Tariff  Eeformers  Desire  to  Avoid  Crippling^  Industries.  — 

Though  recognizing  that  free  trade  is  the  ideal  condition, 
permitting  exchange  of  every  producer's  product  for 
whichever  of  the  world's  commodities  will  be  most  val- 
uable here,  and  giving  equal  rights  to  all,  with  special 
privileges  to  none,  —  American  economists  and  tariff 
reformers,  as  a  rule,  desire  to  reduce  and  remove  the 
protective  duties  gradually,  that  the  industries  so  long 
favored  may  have  time  to  adjust  themselves  to  unaided 
or  less  aided  self-support. 

Will  Unsound  Claims  be  Candidly  Given  Up  ?  —  Perhaps 
it  is  not  now  expecting  too  much  of  self-seeking  human 
nature,  to  hope  that  protected  interests,  to  some  extent 
at  least,  will  candidly  give  up  palpably  unsound  claims 
and  excuses,  and  in  a  spirit  of  compromise  honestly  make 
the  best  of  tariff  reform,  instead  of  tending  petulantly  to 
discredit  it  by  suspending  work  and  making  a  show  of 
hard  times.  As  stated  before,  an  old  industry's  con- 
tinued need  of  protection,  the  claim  as  to  higher  wages 
being  untenable,  shows  that  it  is  out  of  place  in  this 
country,  or  has  not  made  good  use  of  its  tariff  favor  to 
reach  self-support. 

We  May  Long  Sustain  Losses  from  Protection,  reaping 
from  unwise  sowing  in  the  past.  "  At  least  five  per  cent 
of  the  labor  force  of  the  country,  certainly  not  more  than 
ten  per  cent,  is  now  engaged  in  enterprises  which  could 

405 


4o6  TJie  Plain  Facts  as  to  the  Tariff. 

not  continue  to  exist  if  protection  should  be  removed 
entirely."  ^  Perhaps  the  most  important  of  these  are  in 
woolen  and  silk  manufacturing.  In  cotton  manufactur- 
ing, and  the  iron  industries,  strong  concerns  would  be  little 
harmed  (many  of  them  benefited),  but  weak  concerns, 
unable  to  produce  at  low  cost,  would  doubtless  be  closed. 

To  Avoid  the  Shock  of  Destroying  a  Business,  these 
weaker  industries  must  be  carried  a  long  time  on  the 
tariff  tax.  If  the  public  had  never  started  them  with  pro- 
tection, it  would  not  now  have  them  on  its  hands. 
Those  producers  are  blameless  who  had  no  part  in  se- 
curing enactment  of  the  protective  duties  upon  which 
they  depend.  In  a  settled  movement  toward  practical 
free  trade,  or  low  duties,  persons  in  these  industries 
might  gradually  give  them  up  if  self-support  seemed  out 
of  reach.  Only  by  being  carried  can  an  unfit  business 
survive.      It  is  out  of  place,  like  an  ox  upon  the  sea. 

How  Could  Displaced  Men  Find  Work  ? — If  all  protec- 
tion were  removed  suddenly,  this  five  or  ten  per  cent  of 
American  labor  and  capital  would  eventually  find  em- 
ployment in  our  resources,  and  wages  would  then 
continue  as  before,  soon  to  be  gradually  raised — in  goods 
enjoyed,  by  removal  of  the  private  tax  from  prices ;  in 
money  also,  from  free  trade's  effect  to  increase  the  em- 
ployer's net  income,  with  cheaper  materials  and  wider 
markets.  In  a  period  of  weak  demand  for  goods,  sus- 
pension of  these  industries,  causing  an  over-supply  of 
labor,  would  quickly  lower  wages  in  some  lines,  and 
might  add  seriously  to  the  depression.  But  if  the  change 
were  made  in  a  time  of  brisk  demand,  the  labor  released, 
if  able  to  move  quickly,  might  at  once  find  work  without 
fall  of  wages,  as  do  men  thrown  out  by  improved  ma- 

1  Bullock,  1897,  page  365. 


Tlic  Tariff  Question  as  it  Stands  To-Day.        407 

chinery,  and  as  do  the  many  thousands  of  men  disbanded 
at  the  close  of  a  war.  Besides,  as  explained  on  page  323, 
opening  our  market  would  raise  foreign  price,  until  in- 
crease of  their  capacity  enabled  foreign  producers  to 
supply  us  at  the  low  price  previously  charged.  Hence, 
price  here  would  not  fall  at  once  by  the  full  amount  of 
the  duty  removed.  With  goods  we  are  prepared  to  pro- 
duce unaided,  removal  of  the  duty  might  so  increase 
sales  as  not  only  to  give  consumers  the  maximum  enjoy- 
ment, but  also  to  give  producers,  at  home  and  abroad, 
an  equal  price  yielding  to  each  of  ours  a  total  profit 
greater  than  that  under  the  artificial  price  before. 

The  TariflF  Question  Has  Begun  to  Settle  Itself. — Fortu- 
nately, the  tariff  question  has  at  last  made  a  start  toward 
settling  itself  Some  claims  of  protectionists  must  neces- 
sarily be  abandoned  now,  since  the  recent  rise  of  our 
leading  protected  industries  to  a  position  of  world  su- 
premacy, with  admitted  need  of  foreign  markets,  and  with 
labor  cost  per  unit  of  product  notoriously  lower  than  in 
England.  Thomas  B.  Reed,  one  of  the  ablest  protec- 
tionists, said  in  1894:  "Tariff  duties  become  a  dead 
letter  when  we  are  able  to  compete  with  the  outside 
world."  Moreover,  national  revenue  needs  to  be 
lessened,  in  view  of  an  unprecedented  surplus  in  the 
treasury.  Prudent  statesmen  of  the  party  in  power  have 
desired  to  reduce  appropriations,  not  because  the  country 
could  not  easily  raise  if  necessary  double  its  present 
national  revenue,  but  because  unwise  expenditure  is 
corrupting,  affording  opportunity  of  gain  to  people  by 
whose  influence  the  expenditure  may  be  brought  about. 
A  full  treasury  is  a  source  of  continual  temptation. 
Coming  from  compulsory  taxes,  it  is  not  the  same  evi- 
dence of  success  that  it  is  in  a  private  business,  whose 


4o8  The  Plam  Facts  as  to  the  Tanff. 

gains  come  from  voluntary  custom.  Now,  perhaps  as 
never  before,  is  a  time  for  tariff  reform  on  a  large  scale. 
Those  who  oppose  it  will  have  no  trouble  in  finding 
ways  to  get  rid  of  the  surplus  money  in  the  treasury.^ 

The  First  Encouraging  Evidence  of  Increasing  Fair- 
mindedness  among  those  in  protected  industries  was  in 
the  meeting  at  Detroit  in  June,  1901,  of  the  National 
Association  of  Manufacturers,  representing  many  mill- 
ions of  capital,  employing  hundreds  of  thousands  of 
men,  and  composed  perhaps  chiefly  of  life-long  protec- 
tionists. Tariff  revision  was  the  subject  that  received 
most  attention.  Reciprocity  was  discussed  with  decided 
favor,  a  movement  being  started  for  a  national  reciprocity 
convention.  Repeal  was  urged  of  the  tariff  clause  that 
required  the  imposition  of  the  higher  duty  on  Russia's 
partly  refined  sugar,  which  caused  her  to  retaliate  with  a 
prohibitory  duty  on  some  of  our  iron  manufactures.^ 

1  "  When  Receipts  Are  Gaining  on  expenditures  at  the  rate  of  $1^,- 
000,000  in  three  months,  there  is  but  one  proper  fixed  pohcy  to  pursue, 
and  that  is  a  policy  of  tax  reduction." — Chicago  Record- Herald.  The 
Secretary  of  the  Treasury  estimates  that  the  government  income,  for  the 
year  ending  June  30,  1902,  will  exceed  expenditures  by  ;^loo,ooo,ooo. 
Surplus  cash  in  the  treasury,  November  I,  1901,  reached  5i75,ooo,oco 
over  and  above  the  ^150,000,000  gold  reserve  held  to  redeem  paper  money. 
Total  gold  in  the  treasury  March  I,  1902,  was  $544,596,900,  the  largest 
amount  of  gold  ever  gathered  together  at  any  place  in  the  world. 

2  Tariff  Reform  Resolutions  of  the  Manufacturers'  Association.  — 

The  resolutions  of  the  convention  were  as  follows  : 

Whereas,  Recent  events  have  brought  forward  the  question  of  tariff 
revision  ;  and 

Whereas,  The  subject  is  one  of  vital  interest  to  the  members  of  this 
association,  and  intimately  connected  with  the  most  important  purpose  of 
the  association,  to  facilitate  the  expansion  of  American  trade  and  commerce 
at  home  and  abroad  ;  therefore. 

Resolved,  That  the  National  Association  of  Manufacturers  affirm  that  the 
following  principles  should  govern  all  legislation  : 

First,  That  the  object  of  tariff  legislation  should  be  to  furnish  adequate 
protection  to  such  products  only  as  require  it,  without  providing  the  oppor- 
tunity for  monopoly  abuses. 


TJic  Tariff  Question  as  it  Stands  To- Day.        409 

Honor  Should  Not  be  Withheld  from  These  Gentlemen  ^ 
because  it  is  for  their  own  gain,  in  making  a  market  for 
their  goods  abroad,  that  they  are  now  recommending 
tariff  revision.     If  it  did  not  eventually  pay  in  money  to 

Second,  That  the  tariff  on  goods  whose  cost  of  production  is  higher  in 
the  United  States  than  in  foreign  countries  should  be  at  least  what  is  neces- 
sary to  compensate  domestic  industries  for  the  higher  cost  of  production. 

^"  One  of  the  Great  Movements  of  the  Age." — Under  this  heading 
the  Detroit  Fi-ee  Press  said  editorially,  in  part,  of  these  manufacturers  : 

"  As  they  change  the  party  is  changing.  In  the  South  the  President  spoke 
openly  for  more  liberal  trade  relations.  Such  men  as  Representative  Bab- 
cock  have  denounced  in  unmeasured  terms  the  flagrant  abuses  of  protection 
that  make  our  people  pay  more  for  domestic  products  than  they  are  sold  for 
abroad,  and  propose  to  carry  the  fight  into  the  next  session  of  Congress. 
He  stands  by  the  proposition  that  protection  has  become  robbery,  and  that 
the  tariff  is  the  mother  of  trusts.  He  is  the  target  for  malignant  abuse  by 
the  old  and  case-hardened  organs  of  the  party,  but  the  thinking  and  pro- 
gressive Republican  and  independent  papers  are  with  him.  The  manufac- 
turers are  also  with  him  in  the  principle  that  he  advocates,  the  chief  con- 
tention being  as  to  details.  A  point  has  been  reached  where  it  is  to  be 
decided  whether  we  shall  protect  foreign  buyers  and  consumers,  and  pay 
dearly  for  the  privilege.  To  such  a  controversy  there  can  be  but  one  out- 
come, and  the  manufacturers  are  ranged  on  the  side  of  the  winners." 

Press  Comments. — The  following  are  extracts  from  some  of  the  pro- 
gressive Republican  papers  referred  to  : 

"Aggressive  tariff  worshippers  cannot  too  soon  conclude  that  tariff  re- 
vision is  inevitable,  and  that  the  people  will  not  tolerate  monopoly  abuse 
under  the  guise  of  protection." — Chicago  Evening  Post. 

"  Unless  the  party  does  this  [enters  at  once  upon  a  campaign  of  educa- 
tion] the  rising  tide  will  sweep  away  not  only  protection,  but  also  the  other 
Republican  policies  with  it." — Chicago  Inter-Ocean. 

"The  most  sagacious  minds  in  the  Republican  party  foresee  that  changes 
must  be  made." — New  York  Covunercial  Advertiser. 

"  In  declaring  for  free  trade  with  Canada,  the  Duluth  Chamber  of  Com- 
merce doubtless  voices  the  prevailing  sentiment  along  the  border  on  both 
sides." — Boston  Transcript. 

"Our  antiquated  and  outrageously  restrictive  navigation  laws." — Balti- 
more A7nei  ican. 

Strong  Growth  of  the  Tariff  Reform  Movement,  since  the  above 
comments  were  made,  is  to  be  noted  now  (May,  1902).  Apparently  it  is 
destined  this  time  to  become  in  fact  one  of  the  great  movements  of  the  age. 
Growth  of  industry  is  bringing  around  toward  free  trade  the  ruling  in- 
dustrial class.  General  acquiescence  in  the  present  tariff,  doubtful  last 
fall,  is  now  clearly  untrue.  Editors  of  the  leading  periodicals,  who  usu- 
ally   consider   the   tariff  question  on   its   scientific  merits,  are  practically 


410  The  Plain  Facts  as  to  the  Tariff. 

be  fair  and  honest,  justice  and  considerateness  among 
men  would  have  little  chance.  A  moral  reason  of  right 
seldom  prevails  in  society  until  reenforced  by  an  eco- 
nomic reason  of  gain.  This  is  in  accord  with  men's 
nature,  and  it  is  useless  to  censure  them  for  it.  Tariff 
reformers  will  agree  with  these  manufacturers  that  a  duty 
must  be  allowed  for  the  present  to  those  industries  un- 
able to  live  without  it,  though  it  is  to  be  regretted  that 
they  ever  were  started.     Unlike  the  other  90  or  95  per 

unanimous  in  favoring  reform.  Party  papers  too  are  falling  into  line,  per- 
ceiving that  tariff  reform  is  not  only  right  but  expedient.  Notable  in  this 
respect  are  the  New  York  Tribune  and  the  Chicago  Tribune,  second  to 
none  in  influence  among  Republican  journals.  At  no  other  time  in  thirty 
years  has  tariff  reform  attained  an  approach  to  its  present  hold  upon  the 
Republican  party.  Some  of  this  party's  leading  statesmen  are  quoted 
further  on. 

Nearly  a  Hundred  Chambers  of  Commerce  and  other  associations, 
from  Maine  to  Oregon,  including  both  manufacturers  and  merchants,  have 
declared  for  tariff  concessions  to  Canada.  By  reason  of  a  need  for  cheaper 
raw  materials,  this  sentiment  in  New  England  prevails  almost  unanimously 
in  both  parties.  Apparently,  New  England  desires  reciprocity  more  ear- 
nestly than  does  Canada  herself.  (^Public  Opinion,  April  lo. )  Nothing 
but  assertion  and  vituperation  (F.  A.  Walker)  has  been  offered  by  pro- 
tectionists to  explain  why  we  should  welcome  free  trade  with  Canada  as  a 
state  of  our  union,  but  should  regard  it  as  perilous  to  us  under  Canada's 
present  relations  ;  nor  to  explain  why  free  trade  would  not  be  as  good 
among  nations  as  among  our  states — large  and  small,  near  and  distant, 
similar  and  dissimilar.  Free  trade  with  Canada  might  be  similar  to  our 
present  free  trade  with  Porto  Rico.  We  now  buy  of  the  latter  three  times 
as  much  as  before  the  late  war,  and  sell  her  five  times  as  much.  A  number 
of  trade  associations  sent  delegations  to  the  President  in  November,  to  urge 
reciprocity  or  tariff  reduction,  in  order  to  increase  our  foreign  sales.  Of  58 
leading  concerns  making  machine  tools,  questioned  by  the  American 
Machinist  in  March,  only  2  said  they  needed  a  tariff  duty  ;  34  said  they 
needed  no  duty  at  all ;  38  said  the  tariff  restricts  our  foreign  sales  of 
machinery  ;  42  (against  3)  said  we  should  modify  or  abolish  protection  on 
machine  tools  ;  38  indorsed  reciprocity.  The  general  sentiment  of  replies 
was  that  what  the  machinery  trade  needs  is  markets,  not  protection ;  that 
the  need  of  it  having  been  outgrown,  it  is  now  beginning  to  injure  our  trade 
abroad.     {^The  Nation,  April  10,  1902.) 


The  Tariff  Question  as  it  Stattds  To-Day.        411 

cent  of  our  industries,  their  labor  is  employed  on  com- 
modities not  naturally  worth  their  cost,  the  people's  con- 
tribution making  up  the  deficiency.  But  bearing  uncon- 
sciously this  steady  contribution  through  the  tariff  is  less 
harmful  to  the  country  than  a  shock  to  business  would 
be,  caused  by  sudden  or  injudicious  removal  of  tariff 
duties. 

But  Reciprocity  Must  Injure  Some  Home  Industries — 
take  away  some  of  their  business — in  order  to  be  effective. 
Tariff  reduction,  to  secure  a  like  favor  from  a  foreign 
nation  on  other  commodities,  cannot  be  confined  to  indus- 
tries already  meeting  prices  abroad,  and  able  to  hold  the 
home  market  without  protection.  On  these  reduction 
might  give  the  foreigner  no  benefit — might  not  increase 
his  sales.  The  object  is  to  permit  him  to  increase  his 
sales  here,  in  order  to  induce  him  to  permit  us  to  increase 
our  sales  there.  But  when  reciprocity  takes  protection 
from  an  industry  not  yet  self-sustaining,  and  not  fast 
becoming  able  to  reduce  price  to  the  foreign  level,  a  cry 
arises  that  the  weak  are  being  sacrificed  for  the  strong. 
The  answer  is  that  chronic  weakness  in  this  case  is  a 
reason  for  not  surviving.  Industry  exists  to  serve  soci- 
ety, not  to  be  helped  by  it.^ 

'There  is  No  Need  to  Have  Weak  Industries. — They  are  weak 
because  larger  product  value  in  many  stronger  ones  raises  wages  and  other 
expenses.  In  these  stronger  ones  is  the  place  to  operate.  In  them  a  manu- 
facturer and  his  employees,  when  their  minds  have  been  cleared  from  the 
fog  of  protective  ideas  instilled  into  them,  can  have  the  satisfaction  of 
knowing  that  they  are  not  partly  supported  by  public  contributions  ;  that  to 
the  full  amount  of  its  selling  price  their  product  adds  to  the  nation's  wealth. 
When  in  the  price  of  a  dollar  article  forty  cents  comes  from  the  tariff,  its 
production  adds  to  the  country's  wealth  but  sixty  cents  (making  no  de- 
duction for  material  used).  The  forty  cents  is  taxed  from  the  products  of 
other  producers.  They  get  so  much  less  in  quantity  for  their  dollar  ;  and 
the  same  amount,  which  the  protected  industry  fails  to  produce,  by  reason 
of  its  being  out  of  place,  is  thrown  into  the  sea.      (D.  A.  Wells.) 


4 1 2  TJie  Plain  Facts  as  to  the  Tariff. 

To  Restrict  Reciprocity  to  Nothingness  was  the  aim  of 
the  reciprocity  convention  held  by  the  Manufacturers' 
Association  in  November,  1901.  Manufacturers  specially 
benefited  by  and  depending  upon  protection,  always 
more  united  and  aggressive  than  the  interests  desiring 
the  less  direct  benefits  of  freer  trade,  obtained  control  of 
the  convention,  and  resolved  that  reciprocity  should  be 
confined  to  cases  in  which  it  will  harm  no  home  industry. 
This  means  no  reciprocity  at  all.  The  free  list  already 
includes  perhaps  eveiy  commodity  not  produced  at 
home  ;  while,  as  stated  before,  a  tariff  reduction  that  does 
not  take  sales  from  the  home  producer,  and  give  them  to 
the  foreigner  offering  lower  prices  here,'  will  not  induce 

Work  from  Broken  Windows  and  Burnt  Houses. — If  the  protected 
industry  is  not,  by  reason  of  its  aid,  fast  reaching  self-support,  the  employ- 
ment and  business  it  makes  are  not  greatly  different  from  that  of  broken 
windows  and  burnt  houses — leaving  consumers  so  much  less  to  spend  for 
other  products  affording  equal  or  more  employment.  The  case  is  the  same 
with  employment  and  business  arising  from  war.  A  navy  somewhat  en- 
larged may  be  a  good  thing,  deterring  others  from  attacking  us  and  not 
leading  us  to  pick  quarrels  with  them  ;  but  the  shipbuilder  not  getting 
the  contract  for  a  battleship  does  not  lose  the  amount  of  its  four  millions 
cost,  nor  even  the  million  or  half  million  profit ;  for  with  his  plant  he  may 
make  as  much  from  other  work  now  crowding  to  be  done.  A  workman 
likewise  does  not  lose  the  wages  to  be  afforded  by  a  possible  new  industry 
not  started  with  protection.  His  time  is  left  for  other  work  which  the  ex- 
istence of  society  requires  to  be  done.  People  with  wealth,  to  get  good 
from  it,  must  spend  or  invest  it  in  some  way  that  makes  business.  A 
dollar  wasted  in  carousing,  with  no  return,  makes  no  more  business  directly 
than  if  paid  out  forsolidest  value,  which  may  enable  the  possessor  to  patron- 
ize others  continually  afterwards.  It  is  viciously  unsound  to  justify  public 
expenditure  by  saying  that  the  money  makes  trade,  and  benefits  the  people 
among  whom  it  is  spent.  The  same  is  true  of  the  lavish  use  of  money  by 
a  gambler  or  bank  robber,  and  of  the  expenses  of  sickness  and  death. 

•  A  few  writers  even  wish  that  we  had  a  duty  on  coffee,  to  be  removed 
in  a  reciprocity  bargain.  Some  of  the  present  duties  were  put  very  high 
in  1897  for  this  purpose.  The  object  is  the  same  in  Switzerland's  proposed 
addition  of  600  articles  to  her  protected  list. 


TJic  Tariff  Question  as  it  Stands  To-Day .        4 1 3 

another  nation  to  lower  its  tariff  and  allow  us  increased 
sales  there.  The  fact  that  the  benefits  of  protection  are 
so  direct  and  certain  for  the  favored  industries,  is  evi- 
dence that  something  is  wrong.  In  free  and  natural 
business  the  seller  does  not  thus  enjoy  regularly  sure 
advantages  not  possessed  in  equal  measure  by  the  buyer. 
Dividing  Home  Territory  with  the  Foreigner. — Cases 
have  been  found  in  which  to  divide  the  American  market 
with  the  foreigner,  and  still  leave  most  of  it  securely 
in  possession  of  home  producers.  Shutting  out  Nova 
Scotia  coal  taxes  New  England  permanently  for  our 
home  coal  producers  and  for  the  railroads  carrying  their 
product.  No  improvement  of  mining  under  protection 
could  be  expected  to  overcome  the  freight  here  necessi- 
tated by  distance.  The  case  is  the  same  with  salt,  freight 
on  which  to  our  seaboard  territory  is  much  lower  on  the 
foreign  article  than  on  the  domestic  from  Michigan  and 
central  New  York.  Foreign  salt  has  come  in  as  ballast 
for  ships,  free  of  freight  charges.  Domestic  salt  could  not 
be  sold  in  some  districts  under  free  trade.  The  duty 
here  is  a  permanent  tax  for  the  salt  trust  and  the  rail- 
roads. The  original  and  sometimes  proper  purpose  of 
protection,  to  enable  a  new  industry  to  stand  alone,  does 
not  apply  in  these  cases.  With  some  other  protected 
articles,  similar  conditions  probably  exist.  The  raw 
materials  required  in  manufacturing  will  naturally  be 
freed  first  from  price-raising  protection.  They  were 
always  to  be  free  by  logical  protective  systems,  because 
a  duty  on  them  hinders  industry  to  benefit  the  monopo- 
listic owners  of  limited  natural  supply. 

A  New  Burden,  to  be  Borne  for  Generations  to  come, 
the  American  people  seem   now  in   danger  of  having 


414  The  Plain  Facts  as  to  the  Tariff. 

settled  upon  them.  It  is  not  agreeable  to  throw  cold 
water  in  this  way  upon  the  rising  expectations  of  the 
Hawaiians  and  Porto  Ricans,  nor  of  the  beet  sugar  pro- 
ducers in  a  number  of  our  states.  But  what  else  will 
the  truth  permit  ?  However  gratifying  the  new  hope 
given  to  farmers  in  the  profits  of  beet  growing,  afforded 
by  the  dozens  of  sugar  factories  now  springing  up,  have 
we  really  a  field  for  beet  sugar  production,  whatever  the 
fitness  of  our  soil  and  the  extent  of  our  consumption, 
when  the  industry  claims  to  be  unable  to  exist  without  a 
full  tariff  duty  that  now  nearly  doubles  the  price,  and 
when  Europe  is  flooding  the  world  with  sugar  we  might 
enjoy  if  we  would  at  unheard-of  cheapness  ?  Under 
these  conditions  is  it  sugar  production  that  yields  the 
profits,  or  is  it  the  consumer's  contribution  collected 
through  the  tariff  addition  to  price?  What  industry 
would  not  be  profitable  if  a  producer  paying  out  ;^i.oo  to 
make  an  article  selling  naturally  at  75  cents  could  have 
his  loss  overbalanced  by  a  gift  of  50  cents  from  taxation  ?^ 

•  $62,000,000  to  the  Treasury,  $36,000,000  into  Private  Pockets.  — 

Our  tariff  on  sugar,  though  highly  protective  to  home  producers,  yields 
large  revenue  —  ^62,680,260  in  1901  on  sugar  and  molasses,  the  bulk  of 
our  sugar  being  imported.  The  duty  on  raw  sugar  averages  about  1.68 
cents  a  pound,  according  to  quality.  The  duty  on  refined  is  1.95  cents. 
The  excess  of  the  latter  is  called  the  differential.  In  addition  to  it  an  extra 
sum  is  levied  to  equal  the  export  bounty  paid  by  the  European  countries 
from  which  refined  sugar  comes.  This  extra  sum,  a  little  over  ^  of  a  cent, 
is  called  the  countervailing  duty.  These  two  items  account  for  the  enor- 
mous profits  of  the  sugar  trust,  12  per  cent  on  common  stock  deemed  to 
consist  largely  of  water. 

According  to  an  October  report  of  Willett  &  Gray,  sugar  statisticians 
of  New  York,  of  our  total  estimated  consumption  in  1901  of  2,360,585 
tons,  1,000,000  at  the  most  was  expected  to  be  produced  in  home  territory 
— 350,000  tons  in  Louisiana,  350,000  in  Hawaii,  150,000  in  Porto  Rico, 
and  150,000  in  American  beet  sugar  factories.  On  this  home  product, 
Willett  &  Gray  estimate  that  $36,000,000  is  paid  to  private  producers,  their 
price  being  increased  to  the  full  amount  of  the  duty,  averaging  $36  per 


TJic  Tariff  Question  as  it  Stands  To-Day.        4 1 5 

Home  Production  of  Sugar  Adds  to  the  Trouble. — The 
tariff  addition  to  price,  by  which  Hawaiians  were  enabled 
to  collect  ;^3 3,000,000  from  American  consumers  during 
the  fourteen  years  of  reciprocity  previous  to  1 890  (page 
389),  now  applies  not  only  to  the  sugar  product  of  Lou- 
isiana and  of  annexed  Hawaii,  but  also  to  that  of  an- 
nexed Porto  Rico,  to  the  increasing  product  of  home 
producers  from  beets,  and  will  apply  to  nearly  a  million 
tons  a  year  from  Cuba,  so  far  as  we  save  that  island  from 
ruin  with  a  reciprocity  reduction  for  her  alone,  instead  of 
a  general  reduction  of  duty  for  producers  in  any  land. 
The  home  product  itemized  in  the  accompanying  note, 
with  a  nearly  equal  product  from  Cuba,  would  leave  less 
than  a  half  million  tons  to  pay  full  duty  into  the  treas- 
ury, though  the  high  price  of  this  would  become  the  price 
of  all.  Private  pockets  might  then  receive  fifty  millions 
or  more  per  year  from  consumers  of  a  necessary  com- 
modity. Our  home  product's  effect  to  increase  supply, 
and  lower  the  world's  price,  would  be  equalled  by 
enlarged  output  from  the  sugar  countries  if  we  bought 
of  them  instead  of  producing. 

Will  Increase  of  the  Home  Product  Become  a  Remedy 
for  such  a  tax  for  priv^ate  benefit  ?  Not  until  this  in- 
crease passes  our  increase  of  consumption,  an  increase 
now  reaching  about  150,000  tons  a  year,  and  supplies 
our  market  as  abundantly  as  all  sugar  producing  coun- 
tries would  supply  us  if  we  admitted  sugar  free  of  duty. 
To  expect  such  a  result  seems  visionary.  Our  beet 
sugar  producers  will  scarcely  surpass  in  improvements 

ton.  As  the  government  does  not  now  need  the  revenue,  if  protection 
could  be  taken  from  both  refiners  and  producers,  the  American  people 
■would  save  about  ^90,000,000  per  year  on  their  present  consumption, 
which  at  the  lower  price  would  then  largely  increase  among  the  poorer 
classes. 


4i6  TJic  Plain  Facts  as  to  the  Tariff. 

the  French  and  Germans,  by  whose  long  appHcation  of 
science  the  beet  sugar  industry  has  been  created.  High 
protection  for  many  years  has  given  Louisiana  and 
Hawaii  a  chance  to  do  all  they  are  capable  of  doing  in 
the  line  of  progress.  Porto  Rico  is  not  larger  than  four 
ordinary  counties,  and  improvement  of  sugar  production 
in  Cuba  may  at  least  be  balanced  by  improvement  in  the 
rest  of  the  tropical  world.  Home  competition  under  pro- 
tection, therefore,  will  hardly  lower  price  of  sugar  in  this 
country  to  the  natural  level  abroad. 

Importing  Must  Continue. — But  home  and  Cuban  pro- 
duction do  not  promise  even  to  relieve  us  of  the  necessity 
of  importing.  So  long  as  this  continues  the  full  duty  is 
added  to  price  of  the  total  we  consume.  After  some 
success  in  the  industry  for  nearly  ten  years,  our  beet 
sugar  output  was  only  77,000  tons  in  1900.  Its  increase 
to  185,000  tons  in  1901  (from  31  up  to  42  factories,  and  9 
more  being  built — Michigan  coming  first)  about  equalled 
our  increase  of  consumption.  But  if  the  business  needs 
the  tariff  duty  so  largely  as  is  claimed,  capital  will  scarcely 
be  invested  in  it  so  rapidly  after  the  exposure  of  its  arti- 
ficial nature  by  the  contest  in  Congress.  By  conserva- 
tive estimates  Cuba's  output  is  not  expected  to  pass  soon 
1,250,000  tons.  Pretty  certainly  it  will  not  pass  that 
quantity  unless  increased  by  a  trust  gaining  from  reci- 
procity with  us.  Hence  there  is  little  prospect  of  relief 
from  paying  the  full  tariff  duty  into  private  pockets,  while 
what  growth  of  home  production  may  come  will  simply 
give  private  pockets  more  and  the  treasury  Icss.^ 

A  Bounty  on  Home  Produced  Sugar,  such  as  the  two 
cents  a  pound   paid  under  the   McKinley  law  of  1890, 

'  C.  A.  Crampton,  one  of  the  government's  experts  in  the  sugar  industry, 
shows  in  The  Forum,  Nov.  1901,  the  improbabihty  of  our  being  supplied 
without  large  importations, 


TJic  Tariff  Question  as  it  Stands  To-Day.        4 1 7 

would  be  preferable  to  tariff  protection,  viewing  both  from 
the  standpoint  of  the  public  good.  Perhaps  our  settled 
policy  of  granting  protection  to  all  industries  needing  it 
gives  present  beet  sugar  producers  a  moral  right  to  favor 
of  some  kind.*  With  a  bounty  limited  at  the  start  to  five 
or  ten  years,  builders  of  sugar  factories  would  know 
what  public  help  they  were  to  have.  Even  without  a 
limit  of  years,  they  would  know  that  a  bounty  paid 
directly  from  the  people's  taxes  in  the  treasury  would 
not  be  permitted  to  continue  long  in  this  country, 
though  it  would  be  no  more  truly  a  public  gift  than  the 
present  less  noticeable  addition  to  price  through  the 
tariff  A  bounty  is  usually  more  objectionable  than  a 
tariff  duty,  because  a  duty  is  paid  by  the  consumers  of 
the  protected  article,  not  by  the  public  in  general  ;  but 
with  sugar  the  consumers  include  everybody.  Under 
the  power  of  Congress  to  make  laws  for  our  island  pos- 
sessions different  from  its   laws  for  the   states,  a   sugar 

'Protection  as  a  Vested  Right. — But  the  Michigan  Supreme  Court  in 
1900,  in  declaring  unconstitutional,  because  not  for  a  public  purpose, 
the  state  sugar  bounty  of  one  cent  a  pound,  said  in  substance  that  consid- 
ering the  bounty  law  a  contract  with  investors  in  sugar  factories  would 
make  legislative  lobbying  too  profitable  for  the  public  good.  Any  scheme 
worked  through  the  legislature  would  then  be  binding  on  the  state. 

It  is  said  that  to  benefit  /tw  the  American  people  will  not  agree  that 
one  shall  be  robbed  of  what  he  has.  ( The  Forum,  Reciprocity,  Dec. 
1901.)  This  assumes  that  the  tariff  gift  is  a  vested  right,  which  might  be 
true  with  men  induced  by  it  to  put  money  into  new  enterprises,  were  it  not 
for  their  knowledge  then  that  the  tariff  is  liable  to  be  revised  at  any  time, 
is  objected  to  by  many  people,  and  is  always  subject  to  the  discretion  of 
Congress  as  to  whether  continuance  of  any  protective  duty  is  desirable  to 
the  public.  Protection,  especially  among  self-governing  people,  subjects 
business  to  the  uncertainty  of  politics.  Of  course,  as  stated  before,  after 
permitting  an  industry  to  grow  up  under  protection,  justice  requires  that  the 
aid  be  removed  gradually.  The  difficulty  of  removing  it  is  perhaps  the 
main  objection  to  starting  it.  This  is  one  of  the  vested  rights  with  which 
Europe  has  long  been  burdened. 

27 


4 1 8  The  Plain  Facts  as  to  the  Tariff. 

bounty  could  be  confined  to  the  cane  producers  in  Louisi- 
ana, and  the  beet  producers  in  Michigan,  Cahfornia,  and 
other  states.  It  would  seem  that  this  country  has  con- 
ferred enough  special  benefits  on  those  citizens  who  so  suc- 
cessfijlly  exploited  Hawaii.  Admission  of  all  raw  sugar 
free  of  duty,  as  from  1890  to  1894,  would  be  sufficient 
for  Cuba  and  Porto  Rico,  which  of  all  countries  are  sup- 
posed to  be  fitted  to  produce  cane  sugar  without  artificial 
aid ;  while  removal  of  the  duty  on  refined  sugar  is  the 
only  effective  way  to  save  to  the  people  the  many  millions 
of  monopoly  profit  levied  by  the  sugar  trust,^ 

>  Safer  to  Give  Cuba  Free  Trade  than  Statehood. — With  all  our 
foreign  islands,  and  with  Cuba,  it  would  seem  better  for  this  country  to 
hold  them  off  at  a  little  distance,  under  free  trade  or  liberal  tariffs,  than 
ever  to  admit  them  as  states  with  anything  like  their  present  population. 
Political  pressure  for  their  admission,  to  secure  free  trade,  or  for  other  rea- 
sons, may  need  to  be  guarded  against.  A  constitutional  amendment,  taking 
from  Congress  the  power  to  make  states  of  these  or  other  annexed  regions, 
is  advocated  by  some  thoughtful  men.  Admission  of  such  blocks  of  for- 
eigners to  indestructible  statehood,  taken  with  our  steady  inflow  of  European 
immigrants  rearing  large  families,  would  soon  place  in  a  minority  in  the 
nation,  as  now  in  the  large  cities,  the  native  people  who  formerly  consti- 
tuted the  Americans,  and  who  made  ours  so  desirable  a  government  under 
which  to  settle. 

Immigrants  in  1902  are  expected  to  number  nearly  600,000,  chiefly 
men,  soon  to  be  voters,  the  vast  majority  of  them  from  Italy  and  southeastern 
Europe,  and  nearly  all  of  them  going  to  cities.  New  York  city's  foreign 
born  have  increased  307,317  in  ten  years,  98  per  cent  of  them  from 
southern  and  eastern  Europe.  In  one  week  of  May,  1902,  there  were 
landed  at  New  York  29,519  immigrants.  In  four  months  30,000  more 
came  than  ever  before  in  the  same  period.  Not  many  years  at  this  rate 
will  be  necessary,  from  pressure  on  the  means  of  subsistence,  to  lower 
wages  and  living  toward  the  European  level.  If  improvement  of  produc- 
tion prevents  a  fall,  inflow  of  people  will  prevent  or  check  a  rise.  More- 
over, it  should  have  been  mentioned  in  connection  with  the  tariff  and  wages 
(pages  360-73)  that  the  class  of  foreigners  now  coming  canno't  be  unionized 
for  years.  It  was  partly  for  this  reason  that  the  same  races  were  brought 
in  great  numbers  to  Pennsylvania.  (  The  Outlook,  article  on  coal  workers, 
May  24,  1902.)  The  educational  test  just  adopted  by  the  House  would 
have  shut  out  last  year  a  quarter  of  those  older  than  fourteen  years. 


TJic  Tariff  Question  as  it  Stands  To-Day.        419 

Self-Supporting  Home  Production  of  Sugar  from  beets 
is  a  consummation  devoutly  to  be  wished  for  farmers  in 
many  districts  needing  more  profitable  crops,  though  this 
is  now  less  true  than  it  was,  the  world-wide  good  times 
of  the  last  four  years  having  raised  farm  prices,  and 
farmers  having  better  adapted  themselves  to  changed 
conditions.  It  may  be  true  that  the  beet  sugar  industry 
can  prosper  without  long  continued  assistance  from  the 
public.  That  it  needs,  or  will  soon  need,  no  artificial 
help  at  all,  is  the  inference  from  a  circular  of  1899  from 
Messrs.  Oxnard  and  Cutting,  who  are  at  the  head  of  the 
beet  sugar  industry  west  of  the  Missouri,  and  of  the  beet 
sugar  trust.  In  this  circular  they  said  they  had  nothing 
to  fear  from  free  trade  in  sugar,  with  Cuba  and  with  all 
the  world. ^     If  we  are  to  have  a  beet  sugar  industry,  it 

^  Can  Beet  Growing  Stand  Alone,  or  is  it  Undesirable  ?— Long  ex- 
tracts from  this  circular  were  published  in  7'he  Outlook  of  Jan.  1 8,  1902. 
But  as  it  was  issued  to  sell  stock  in  sugar  factories,  especially  welcome  is 
the  confirmatory  evidence  of  General  Manager  Cutler,  of  the  Utah  Sugar 
Co.,  who  says  (N.  Y,  Tribune,  Jan.  23)  that  reducing  the  duty  to  Cubans 
25  per  cent  will  not  lower  price  ;  that  the  beet  industry  is  now  growing  too 
fast  to  be  checked  by  moderate  tariff  concessions ;  and  that  in  ten  years 
it  will  bear  absolute  free  trade  in  sugar.  Taking  off  25  per  cent  of  the 
duty,  or  all  of  it,  will  not  lower  price.  So  long  as  our  demand  requires  from 
abroad  more  than  Cuba  can  supply,  our  price  must  be  high  enough  to  bring 
in  sugar  from  other  lands  paying  the  full  duty.  On  the  other  hand,  there 
is  evidence  that  the  beet  industry  is  not  worth  building  up,  which  is  also 
a  reason  for  lowering  the  duty  to  Cubans.  Mr.  Oxnard  has  said  he  has  never 
been  able  to  induce  farmers  to  supply  over  half  the  beets  wanted.  The 
America7i  Cultivator  says  beets  have  not  proved  more  profitable  than  other 
crops  now  grown.  They  are  a  more  suitable  crop  for  Europe,  where  the 
cheap  labor  of  women  and  children  is  used.  The  manufacturers  have  been 
joined  by  few  farmers  in  lobbying  against  reduction  of  duty  to  the  Cubans. 
It  is  said  the  whole  movement  against  this  reduction  was  worked  up  by  a 
few  men,  following  the  example  of  promoters.  Such  was  said  to  be  the 
case  with  the  oleomargarine  bill  (page  251),  now  a  law.  It  seems  certain 
that  the  farmers  as  a  class  are  far  less  anxious  to  be  helped  in  the  sugar  matter 
than  politicians  and  sugar  capitalists  are  to  render  the  help,  and  thus  gam 


42 o  The  Plain  Facts  as  to  the  Tariff. 

is  to  be  hoped  this  was  a  correct  statement  of  the  case. 
Such  an  industry,  built  up  in  many  states  by  protective 
duties  it  could  not  do  without,  and  especially  if  prized  by 
farmers,  for  whom  the  tariff  has  done  so  little,  —  would 
be  able  to  hold  its  protection  indefinitely  into  the  future, 
and  might  thus  become  a  permanent  burden  on  the 
country. 

Our  Duty  Toward  Cuba.  —  Beginning  before  the  open- 
ing of  Congress  in  1901,  those  under  responsibility  in 
the  matter  —  President  Roosevelt,  Secretary  Root,  and 
Governor  Wood — have  been  urging  an  immediate  reci- 
procity reduction  of  our  tariff  against  the  sugar  and  to- 
bacco of  Cuba,  whose  people,  our  wards,  are  exposed  to 
imminent  bankruptcy  and  disorder.  Being  subject  to  an 
average  duty  of  1.68  cents  a  pound  in  New  York,  raw 
sugar  at  Cuban  ports  has  lately  sold  as  low  as  i. 71  J/2 
cents,  from  which  the  inland  Cuban  freight  must  be  de- 
ducted, bringing  the  net  price  to  av^erage  growers  below 
cost  of  production.^  It  is  feared  that  a  reduction  of  our 
tariff  for  Cubans  of  less  than  35  to  50  per  cent  will  not 
be  sufficient  to  save  them  from  ruinous  disaster.  With 
this  concession  from  us,  they  could  meet  the  world  price 
of  raw  sugar,  fixed  by  the  market  of  Hamburg,  where 
the  largest  quantity  is  sold. 

A  Crisis  in  the  World's  Sugar  Industry. — Cuba's  sugar 
can  find  sale  in  the  United  States  alone,  from  which  she 
properly  asks  some  consideration.  Great  Britain,  the 
only  other  important  sugar  market  not  supplied  at 
home,  buys  from  the    Continental    countries    at   prices 

an  end  for  themselves.  Many  farmers  realize  that  the  Cubans,  if  placed  on 
their  feet,  would  buy  of  us  additional  farm  products  amounting  to  several 
times  more  than  any  probable  decline  to  be  caused  in  beet  growing. 

*  The  average  price  of  our  sugar,  at  the  foreign  port  of  shipment,  was 
3.28  cents  in  1890,  2.01  in  1897,  and  2.28  in  1901. 


The  Tanff  Question  as  it  Stands  To-Day.        42 1 

below  cost.  The  German  beet  sugar  producers,  pro- 
tected by  a  tariff,  keeping  up  price  at  home  by  Hmiting 
supply  through  their  trust,  and  receiving  from  their  gov- 
ernment a  bounty  on  what  they  export,  are  able  to  sell 
abroad  at  fully  a  half  cent  a  pound  below  their  cost  of 
production.*  The  same  bounty  system  prevails  in  the 
other  countries  of  Continental  Europe.  One  result  of 
over-stimulation  is  that  the  world's  product  of  sugar  is 
increasing  too  fast  for  present  markets,  causing  an  accu- 
mulation of  a  vast  unsold  stock.  Another  result  is  that 
Europe  has  a  protected  and  bounty-fed  sugar  industry 
on  her  hands. 

The  Effects  of  European  Sugar  Bounties. — To  save  its 
sugar  producers  from  ruin,  one  nation  cannot  withdraw 
its  protection  and  bounties  unless  the  other  nations  do  so 
too.  As  capitalists  kept  on  entering  the  sugar  industry 
so  long  as  its  profits  were  higher  than  those  in  other 
business,  the  surplus  exported  to  Great  Britain  and  other 
open  markets  increased,  until  the  price  there  received, 
with  the  export  bounty  added,  yielded  only  the  bare  profit 
necessary  to  continue  the  shipments — the  ordinary  profit 
of  other  industries.  The  bounty  paid  by  the  German 
government  from  its  people's  taxes,  to  encourage  expor- 
tation of  sugar,  is  therefore  handed  over  in  lower  price 
to  the  British,  to  induce  them  to  buy  more  and  more. 
Thus   does  nature  mock   those  who  try  to  outwit  her.^ 

•  E.  F.  Atkins,  N.  A.  Review,  Dec.  1901. 

'  Ship  Subsidies  Would  Work  the  Same  Way  on  routes  served  also 
by  foreign  ships  competing  with  ours,  which  routes  would  include  all  the 
important  ones.  Foreign  ships  would  take  the  lowest  living  rates,  and  ours 
would  either  charge  the  same  rates  and  pocket  the  bounty,  or  would  divide  it 
with  the  freight  payer,  who,  in  the  case  of  exports,  two-thirds  of  our  busi- 
ness, would  be  the  foreign  buyer.  Or  more  likely,  rates  would  be  kept  up 
by  means  of  pooling,  and  the  foreign  ships  allowed  their  full  share  of  busi- 
ness, the  subsidy  falling  to  our  ships  as  extra  profit.     Since  capital  became 


422  The  Plain  Facts  as  to  the  Tariff. 

To  such  unnatural  conditions,  flagrantly  unjust  to  home 
consumers  and  taxpayers,  and  not  permanently  good 
for  the  favored  producers,  does  protection  lead,  when 
not  held  firmly  in  check  by  a  government  that  wisely 
considers  its  people  as  a  whole.^ 

Are  We  Too  to  Have  a  Sugar  Industry  on  Our  Hands, 
to  be  supported  for  many  years  by  public  contributions 
through  the  tariff?  This  question  is  now  pressing  for  an 
answer.  It  was  the  smallness  of  the  Louisiana  sugar 
product  that  saved  the  public  at  first,  permitting  nearly 

plentiful  all  railroads  have  been  built  without  aid  that  promise  a  living 
business.  Bonuses  add  to  the  waste  of  capital  in  useless  roads.  (See 
The  Outlook,  May  lo,  1902,  on  Canada's  loss  in  railway  bonuses. ) 

'  Sugar  Bounties  Cost  European  Taxpayers  $25,000,000  in  the 
year  I Sg 5.  [F.  S.  (?«<7r/f/-A',  1897,  p.  95. )  Since  then  the  payment  has 
greatly  increased,  France  alone  paying  $18,560,000  in  I900,  to  339 
manufacturers,  employing  42,812  men.  For  every  employee,  therefore, 
the  manufacturers  received  about  i?430,  nearly  double  the  wages  of  such 
labor  in  France ;  though  by  reason  of  excess  of  cost  over  selling  price, 
profits  were  probably  not  high.  The  bounties  paid  by  France,  Ger- 
many, and  Austria,  on  sugar  exported,  range  from  27  to  38  cents  per 
100  pounds.  Bounties  have  so  increased  the  output  that  producers  are  in 
distress.  The  other  nations  had  to  follow  Germany  in  paying  bounties,  to 
give  their  producers  equal  chances.  Duties  and  taxes  on  a  fine  grade  of 
sugar  make  its  price  in  Paris  103  francs  per  loo  pounds,  against  34^  francs 
in  London.  The  countervailing  duties  against  bounty-fed  sugar,  which  a 
party  in  England  urge  their  government  to  levy  to  save  British  West  Indian 
colonies  from  ruin,  would,  M.  Guyot  says,  "  wipe  out  the  sugar  industry  of 
the  Continent."  This  perhaps  is  an  over-statement.  If  in  1843  ^^^ 
French  government  had  bought  and  abolished  the  sugar  industry,  as  it  was 
then  about  to  do,  it  would  have  saved  much  intrigue,  and  many  hundreds  of 
millions  to  French  consumers  and  taxpayers.  (Yves  (juyot,  A^.  A.  Review, 
Jan.  1902. )  As  Professor  Sumner  says,  these  countries  have  the  industry, 
but  other  lands  have  the  sugar.  Germany's  sugar  output  (395  factories) 
increased  200,000  tons  in  1901,  to  a  total  of  1,979,118  tons  of  raw,  but  her 
consumption  fell  off  78,000  tons.  Our  consul  writes  that  in  Berlin  the 
people  must  pay  three  times  the  London  price  for  the  same  German  sugar. 
The  poor  in  France  and  Germany  can  buy  very  little.  Protection  is  capa- 
ble of  incredible  absurdities. 

To  Abolish  Sugar  Bounties,  direct  and  indirect,  on  September  I, 


The  Tanff  Question  as  it  Stands  To- Day.        423 

all  the  tax  to  go  into  the  treasury.  Then  the  tax  began 
to  pass  to  the  private  pockets  of  Hawaiians,  and  lately  to 
the  Porto  Ricans  ;  while  now  some  of  it  is  about  to  pass 
by  reciprocity  to  the  Cubans.  Will  the  many  capitalists 
eager  to  make  beet  sugar  press  their  claims  for  protec- 
tion unless  they  know  they  can  soon  do  without  it? 
For  farmers,  chiefly  unprotected  hitherto,  protection  to 
beet  growing  cannot  easily  be  denied.  With  their  sup- 
port the  beet  sugar  capitalists  can  probably  secure  such 
protection  as  will  build  up  a  great  industry,  even  though 
it  will  never  be  fitted  to  bear  free  trade  in  sugar  from 
Cuba  and  Europe. 

Will  Our  People  Bear  Imposition  Indefinitely  ?  —  But 
will  the  American  people,  in  the  twentieth  century,  bear 
permanently,  for  private  pockets,  such  a  tax  on  consump- 
tion necessary  every  meal  at  every  table  ?  It  seems 
doubtful.  They,  and  most  other  civilized  people,  have 
borne  a  good  deal  from  protection  in  times  past,  as  from 
many  other  harmful  infringements  of  liberty ;  but  appar- 
ently they  are  coming  to  understand  it  too  well  to  per- 
mit another  large  industry  to  be  fastened  upon  them, 
that  cannot  soon  live  without  public  aid.  If  the  produc- 
tion of  beet  sugar  is  such  an  industry,  men  investing 
capital  in  it  take  a  risk  if  they  expect  the  people  to  con- 
tinue providing  for  them  in  the  future.  But  if  it  is  an 
industry  quickly  to  become  capable  of  unaided  self-sup- 
port in  this  country,  it  is  to  be  welcomed,  while  those 

1903,  a  plan  was  at  last  agreed  to  by  the  Continental  nations,  after  some 
years  of  frequent  negotiations,  in  a  conference  at  Brussels  in  February, 
1902.  It  will  probably  be  ratified  by  each  nation  and  carried  into  effect. 
Agreement  was  arrived  at  under  pressure  of  an  imminent  yielding  by  Great 
Britain  of  countervailing  duties  to  aid  her  West  Indian  colonies.  She 
pledged  in  the  conference  not  to  adopt  such  duties  before  the  time  at 
which  the  bounties  are  to  be  abolished. 


424  The  Plain  Facts  as  to  the  Tariff. 

who  establish  it  are  to  be  commended,  and  to  be  accorded 
willingly  the  moderate  measure  of  strictly  temporary 
protection  necessary  to  avoid  an  abrupt  break  in  a  policy 
long  pursued.  Protection  by  direct  bounty  would  be  the 
cheapest  and  most  safely  controlled. 

A  Good  Turning  Point  in  Protection.  —  The  sugar  in- 
dustry, long  and  absurdly  burdened  the  world  over  with 
all  manner  of  artificial  restrictions,  would  be  a  good  point 
from  which  to  turn  more  decidedly  away  from  the  hope- 
lessly unsound  ideas  of  centuries  past.  Though  humanity 
is  now  supplied  as  never  before  with  this  inestimable 
comfort,  it  is  a  source  of  trouble  in  many  countries. 
Sugar  production  is  languishing  in  tropical  lands,  a  con- 
dition caused  by  the  unnatural  favors  that  have  brought 
it  into  similar  depression  in  Europe.  In  few  important 
countries  except  Great  Britain  is  sugar  freely  enjoyed  at 
a  natural  price.  Its  annual  consumption  by  the  British, 
with  their  low  wages,  is  nearly  twenty  pounds  per  head 
greater  than  that  of  the  Americans,  largely  in  the  form 
of  jams  providing  market  for  fruits  (not  to  be  made  here 
because  sugar  is  too  costly).  If  the  incubus  of  govern- 
mental restriction  could  be  shuffled  off  everywhere,  a 
rapid  growth  in  consumption  of  sugar,  adding  largely  to 
human  enjoyment,  would  probably  give  all  producers  of 
it  a  living  price.  America  has  an  opportunity  to  help 
forward  such  a  beneficent  movement  in  sugar,  by  keeping 
out  of  the  quagmire  of  governmental  aid,  in  which  the 
Continental  nations  are  now  floundering. 

Are  Not  Circumstances  Coming  to  the  Rescue?  —  The 
zealous  action,  during  the  session  of  190 1—2,  of  the  few 
Congressmen  and  others  working  for  the  beet  sugar  in- 
terests, the  latter  being  led  by  Mr.  Oxnard,  who  rented 
a  house  in  Washington  to  obtain  vantage  ground  in  the 


The  Tariff  Question  as  it  Stands  To- Day.        425 

contest,  has  been  called  fanatical,  and  by  a  leading  writer 
not  given  to  use  of  epithets.  By  resisting  totally  reci- 
procity for  Cuba,  these  men  apparently  have  not  only 
repudiated  our  generally  admitted  duty  to  help  our 
wards,  but  have  also  overlooked  the  tendency  of  their 
action  to  bring  annexation  of  Cuba,  and  hence  complete 
free  trade  with  her ;  and  have  overlooked  too  that  re- 
duction of  the  tariff  for  Cuba's  crop  cannot  lower  prices 
for  our  home  beet  sugar,  a  fact  that  makes  theirs,  for  near 
results,  a  useless  crusade.  But  these  have  simply  been 
true  to  the  principle  of  protection.  To  help  Cuba  they 
have  proposed  that  we  first  raise  the  duty  and  then  re- 
duce it  for  her,  that  duties  collected  we  pay  back  to  her,  or 
that  we  give  bounties  to  her  planters  —  anything  to  with- 
hold possibility  of  lower  prices  for  our  sugar  consumers.^ 
They  say  it  would  be  violating  the  protective  principle 
to  expose  the  infant  beet  sugar  industry,  a  farming 
interest  at  that,  by  an  act  which  favors  the  sugar  trust 
(the  duty  on  refined  sugar  being  unchanged)  as  the  main 
buyer  of  Cuban  sugar,  and  its  leaders  or  their  associates 
as  owners  of  Cuban  plantations  or  previous  buyers  of 

^  Pay  Bounties  Out  of  the  Treasury  but  Save  Protection.— The  pro 

posal  of  sugar  manufacturers,  that  we  leave  the  duty  as  it  is,  and  pay  back 
to  Cuba  40  per  cent  of  duties  we  collect  on  imports  from  her,  involves 
charity  almost  unmixed.  It  gives  our  consumers  little  prospect  of  cheaper 
sugar  from  increase  of  Cuban  supply,  and  would  not  be  likely  to  enlarge 
Cuban  ability  to  buy  our  goods  unless  the  Cuban  government  continued  the 
charity  and  distributed  among  the  planters  the  duty  returned  by  us.  To 
such  assurance  are  favored  producers  brought  by  protection.  Still  worse 
was  the  late  statement  of  a  steel  magnate,  that  the  trust  would  look  out  for 
the  manufacturing,  but  in  order  that  no  markets  be  lost  it  looked  to  Con- 
gress for  protection  (what  else  but  cash  subsidies?)  for  shipping  to  carry  its 
products.  This  is  a  claim  for  aid  from  the  public  treasury  by  a  trust  earn- 
ing net  profits  of  over  5 100,000,000  a  year,  making  the  cheapest  and  best 
ship  materials  in  the  world,  and  sometimes  selling  its  rails  abroad  JSll  a 
ton  lower  than  its  price  at  home.      {^Public  Opinion,  1902,  p.  262.) 


426  TJie  Plain  Facts  as  to  the  Tariff. 

the  present  crop ;  also,  that  whatever  our  duty  toward 
Cubans,  it  cannot  abrogate  our  duty  toward  our  own 
infant  industries.  They  were  met  half  way  by  the  House 
party  leaders,  who  dreaded  letting  the  tariff  skeleton  out 
of  the  closet,  and  whose  hurried  proposal  of  the  enacted 
repeal  of  ;$7 3, 000,000  of  war  revenue  internal  taxes  was 
believed  to  have  been  prompted  by  a  desire  to  make 
Cuban  reciprocity  impracticable. 

Defeat  of  Cuban  Reciprocity  a  Fortunate  Event.  —  In 
this  uncompromising  spirit  of  the  beet  sugar  party,  how- 
ever, there  is  a  probability  that  the  wrath  of  man  will 
here  work  out  better  results  than  could  have  been  hoped 
for  without  it.  They  have  emphasized  the  true  inward- 
ness of  protection,  which  is  to  favor  a  hundred  if  a 
million  must  suffer  in  consequence.  Also,  by  uniting 
with  Mr.  Babcock  and  his  tariff  reform  Republicans,  sup- 
ported by  the  Democrats  in  a  body,  the  beet  sugar  Con- 
gressmen were  instrumental  in  attaching  to  the  House 
leaders'  paltry  20  per  cent  reduction  bill  for  Cuba 
(April,  1902)  an  amendment  repealing  both  the  differen- 
tial and  the  countervailing  duties  on  refined  sugar.  As 
the  bill  thus  amended,  passing  the  House  by  247  to  52 
(in  a  spirited  revolt  against  the  party  leaders'  plan  to 
save  the  tariff),  cannot  pass  the  Senate,  the  beet  sugar 
men  defeated  Cuban  reciprocity  for  the  present.  But 
at  the  same  time  they  unwillingly  struck  a  heavy  blow 
at  the  protective  system,  by  revealing  the  extent  of  tariff 
reform  sentiment  among  Republican  Congressmen,  the 
pos.sibilities  of  united  action  by  Democrats,  and  the  utter 
idleness  of  all  complaints  of  the  sugar  trust,  whose 
power  for  evil  (leaving  its  power  for  good)  can  at  any 
time  be  wiped  out  by  simple  repeal  of  both  the  duties  on 
refined  sugar.     This  enthusiastic  vote  against  the  sugar 


The  Tariff  Question  as  it  Stands  To-Day.        427 

trust  shows  what  may  be  possible  also  with  the  tariff 
duty  of  the  steel  trust.  Tariff  revision  has  been  has- 
tened, and  its  chances  have  been  broadened. 

Would  Involve  a  Gift  Out  of  the  Treasury.  —  Reci- 
procity with  Cuba  would  be  less  one-sided  against  us 
than  was  the  case  of  Hawaii  (page  389).  Collector 
Bliss  of  Havana  estimates  that  Cuba's  ^66,000,000  of 
imports  in  1901,  of  which  our  decreasing  share  was  but 
;^28, 000,000,  would  reach  after  two  years,  under  Cuban 
prosperity,  ^150,000,000  per  annum,  of  which  85  per 
cent  would  come  from  us  under  the  preferential  duties 
she  offers  in  exchange  for  a  reduction  of  our  duties  on 
her  sugar  and  tobacco.  Yet  the  amount  deducted  from 
our  duties  would  be  nearly  the  same  as  a  gift  out  of  the 
treasury,  as  help  to  the  Cubans,  and  as  a  premium  to 
them  for  buying  of  us.  There  is  another  way  to  help 
and  sell  to  them.  If  their  crop  of  sugar,  800,000  tons  in 
1 90 1,  could  be  made  to  approach  the  extreme  estimate 
of  2,500,000  tons,  and  hence  supply  all  our  future  im- 
porting demand,  price  to  our  consumers,  under  reci- 
procity, would  not  be  lowered  naturally.  Those  debt- 
ridden  people,  and  their  lands,  would  soon  fall  under 
control  of  our  capitalists,  who  would  unite,  limit  produc- 
tion, and  reap  the  usual  monopoly  profits  from  such 
tariff  favors.  Seventeen  American  corporations  owned 
sugar  lands  in  Cuba  before  1898,  ten  of  which  filed  war 
claims  aggregating  ^9,669,000.  Our  capitalists  are  now 
fast  taking  possession  of  business  openings  there.  The 
tobacco  trust  has  lately  secured  85  per  cent  of  Cuba's 
tobacco  and  cigar  industry.  Reciprocity  might  bring 
excellent  results  in  some  cases,  enlarging  market  for  ex- 
ports, and  while  not  lowering  price  to  consumers,  might 
so  increase  imports,  under  a   rate  reduced,  not  removed, 


428  TJic  Plain  Facts  as  to  the  Tariff. 

as  to  increase  total  duties  collected.  But  putting  a  com- 
modity on  the  free  list  is  far  better  where  that  will  bring 
the  same  result  in  opening  a  market  for  exports.  Among 
men  of  capacity,  in  private  business,  an  attempt  to  hold 
one  another's  custom,  by  exchanging  cuts  in  prices, 
would  not  continue.  Lowest  prices  and  best  qualities 
need  no  such  help.  Removing  all  duties  on  sugar, 
allowing  the  beet  men  a  bounty  as  in  1890,  would  confine 
the  giving  to  a  few  at  home,  lower  prices  to  consumers, 
break  the  mastery  of  the  trust,  and  establish  natural 
prosperity  in  Cuba  (especially  when  European  sugar 
bounties  are  abolished  in  1903).  The  goods  the  Cubans 
buy — farm  products,  machinery,  and  cheap  cotton  fabrics 
— our  producers  sell  against  the  world.  From  our 
presence  in  Cuba  as  buyers  of  her  products,  which  we 
need  more  than  does  any  other  country,  our  farmers  and 
manufacturers  would  get  her  trade  without  having  the 
government  to  buy  it  in  reciprocity.^  In  sugar  at  least 
there  is  now  a  chance  to  get  free  from  the  protective 
web.  Putting  it  on  the  free  Hst,  as  under  the  McKinley 
law  of  1 890,  keeping  the  duties  in  the  pockets  of  our  own 
people,  would  so  increase  our  consumption  of  Cuba's 
sugar,  and  promote  her  trade,  that  she  could  easily  wait, 

"Latin  America  and  Reciprocity.  —  Prince  A.  de  Yturbide  {N.  A. 
Reziew,  February,  1 902),  speaking  for  Latin  America,  and  aiming  to  show 
that  a  Pan  American  union  is  impossible,  says  that  where  a  country  de- 
serves preferential  tariff  favor  (offers  best  values)  she  does  not  need  it ;  that 
if  there  were  a  country  so  important  as  a  customer  to  Latin  America  that  she 
should  thus  be  favored,  she  certainly  could  not  be  the  power  that  asked  it ; 
that  "  now,  in  the  face  of  these  circumstances,  we  of  Latin  America  are 
asked  to  do  all  our  trading  in  the  United  States,  and  practically  to  close 
our  markets  to  the  rest  of  the  world."  If  this  writer  is  representative,  our 
neighbors  to  the  south  would  seem  sufficiently  level-headed  to  retain  inde- 
pendence. Free  admission  of  a  number  of  South  American  products  would 
give  our  manufacturers  cheap  raw  materials,  sell  their  goods  in  return,  and 
establish  ship  lines  with  business,  not  with  subsidies. 


The  Tariff  Question  as  it  Stands  To-Day.        429 

without  special   help,    until   the  abolition   of  European 
bounties  relieved  her  from  their  depressing  effect. 

Cannot  These  Capitalists  Produce  Sugar  in  Cuba,  as 
suggested  by  Robert  P.  Porter,  instead  of  trying  to  force 
a  beet  industry  upon  unwilling  people  ?  He  says  that 
at  the  same  wages  for  labor,  sugar  would  cost  the  pro- 
ducer two  cents  a  pound  in  Cuba  against  three  cents 
in  Louisiana.  Congressman  Broussard  says  profits  in 
Cuba  are  larger  than  in  Louisiana  at  half  the  latter's 
price.  If  a  tariff  against  Cuba  is  needed  by  our  sugar 
producers,  her  resources  for  the  crop  are  best,  and 
we  can  gain  by  sending  her  other  things  for  sugar  as 
New  England  gains  by  trading  for  bread  and  meat  in 
the  West.  Besides  the  practical  certainty  that  a  reci- 
procity allowance  to  Cuba  would  soon  fall  to  our  own 
trust  capitalists,  as  in  Hawaii,  certain  other  things  are 
significant.  First,  a  beet  sugar  industry  resting  on  pro- 
tection or  bounties  would  either  remain  small,  from  high 
cost  of  production,  or  be  drawn  by  high  artificial  profits 
into  a  trust,  to  prevent  the  excessive  competition  that 
arises  in  such  cases  (page  180),  and  to  develop  strength, 
not  to  meet  foreign  prices,  but  to  hold  on  to  its  tariff  ad- 
vantage. A  beet  sugar  trust  is  already  in  the  field,  as  is 
indicated  by  the  power  of  the  lobby.  If  there  were  not 
the  cane  sugar  trust  would  buy  the  beet  sugar  factories. 
It  has  been  doing  so,  and  is  said  to  own  now  60 
per  cent  of  them.  Second,  farmers. will  never  get  any 
more  pay  for  beets  than  is  necessary  to  keep  them  from 
turning  to  other  crops.  From  necessity  for  large  cap- 
ital, beet  sugar  factories,  especially  when  protected,  will 
be  monopoly  buyers  of  beets  (page  14),  from  separation 
in  location,  or  from  acting  in  agreement.  At  home,  as  in 
Hawaii  and  Cuba,  the  rich  prize  of  a  public  bounty  will 


43  o  ^/^^  Plain  Facts  as  to  the  Tariff. 

not  be  permitted  by  the  shrewd  to  fall  to  scattered  farm- 
ers. The  safety  of  the  latter,  in  selling  price  as  in  buy- 
ing, is  access  to  the  world's  buyers  (not  to  be  combined) 
by  our  acceptance  of  the  world's  goods  in  exchange. 
Third,  if  Cuba  is  to  buy  ;^i  50,000,000  worth  of  our  prod- 
ucts, we  must  take  about  that  quantity  of  hers.  Her 
staple  product,  sugar,  is  not  wanted  in  Europe.  Those 
who  fear  our  capitalists  will  go  to  Cuba  to  use  cheap 
labor  {Gunton's  for  February)  must  remember  that  unless 
ours  or  some  other  capitalists  enable  the  Cubans  to  turn 
out  products,  and  for  our  markets,  Cubans  cannot  make 
employment  for  our  well  paid  labor  at  home  by  buying 
our  goods.  We  must  not  only  let  the  Cubans  live,  but 
must  make  them  prosper,  if  they  are  to  benefit  our  home 
labor  with  work,  to  say  nothing  of  cheaper  sugar  for 
every  one  of  us.  Fourth,  an  important  reason  for  the 
eagerness  of  capitalists  to  make  beet  sugar  is  probably 
the  chance  to  get  monopoly  profits  by  pleading  the  pop- 
ular case  of  the  farmer,  who  like  the  workingman  can 
be  made  useful  in  other  ways  than  following  his  occupa- 
tion. Evidently,  the  solution  of  the  whole  difficulty  is 
to  grant  a  bounty  to  home  producers  of  sugar.  It  will 
enable  them  to  prove  whether  the  beet  movement  is  not 
forced  and  unnatural.  How  little  their  industry  is 
needed  is  shown  by  the  note  below.^ 

*  A  Glut  of  Sugar. — Experts  have  estimated  the  beet  sugar  crop  of 
Europe,  for  190I,  at  6,710,000  tons,  of  which  1,800,000  tons  are  a  surplus 
above  the  consumption  that  Europe  usually  supplies.  There  probably 
never  has  been  a  more  unfavorable  time  to  start  sugar  production  in  the 
United  States.  It  would  be  producing  something  already  offered  at  prices 
ruinously  low  to  Europe,  but  at  an  unprecedented  bargain  to  us,  if  the 
blind  of  protection  would  permit  us  to  seize  it. 

What  Else  Can  We  Import  So  Profitably?  —  As  foreigners  will 
never  drain  off  their  gold  to  buy  our  products,  however  cheap  and  good, 
we  must  soon  contrive  to  accept  a  large  increase  of  imports  or  have  our 


The  Tariff  Question  as  it  Stands  To-Day .        43 1 

Tariff  Reform  This  Session  of  Congress  is  improbable. 
Reciprocity  for  Cuba  was  delayed  or  defeated  as  ex- 
plained above.  The  reciprocity  treaties  left  over  from 
last  year,  whose  ratification  was  recommended  by  Presi- 
dents McKinley  and  Roosevelt,  are  believed  to  haye  no 
chance  in  the  Senate.  Protected  interests,  evidently 
fearing  to  expose  the  monstrosities  of  the  tariff  to  scru- 
tiny, have  been  seeking  to  spread  the  feeling  that  to 
touch  it  is  dangerous  —  that  it  has  a  sacred  or  myste- 
rious connection  with  prosperity.  These  reciprocity  trea- 
ties, negotiated  several  years  ago  by  John  A.  Kasson 
with  France,  Argentina,  Ecuador,  and  various  West 
Indian  colonies,  embody  concessions  about  as  small  as 
could  be  offered.  They  are  to  continue  only  five  years, 
and  in  no  case,  by  the  Dingley  law,  can  the  reduction  of 
duty  exceed  20  per  cent,  with  admission  to  our  free  list 
of  natural  products  not  produced  in  this  country.^ 

flow  of  exports  choked  off,  stagnating  or  depressing  many  of  our  exporting 
industries.  In  what  dozen  other  commodities  besides  sugar  could  we  im- 
port so  many  tens  of  millions  in  value,  harm  home  industrj'  so  little,  benefit 
so  many  consumers,  including  the  poorer  classes,  help  so  much  our  wards 
the  Cubans  and  Filipinos,  and  open  to  our  pent  up  products  such  promising 
markets  as  those  of  Germany,  France,  Austria,  and  Russia,  perhaps  soon 
to  be  more  tightly  closed  by  retaliatory  duties  ?  They  are  poor,  and  need 
the  sugar  industry — cannot  buy  of  us  without  it.  We  are  rich,  and  have 
abundant  resources  for  other  products,  which,  unlike  it,  are  worth  here 
more  than  they  cost  to  produce,  enabling  labor  and  capital  to  earn  the  living 
they  receive.  If  our  people  now  insist  on  building  up  an  artificial  sugar  in- 
dustry, there  will  be  no  need  to  look  back  in  history  for  incredibly  foolish 
acts  by  nations,  led  at  will  by  selfish  interests. 

1  These  Reciprocity  Reductions  Are  Too  Slight  to  secure  material 
benefit  to  us,  writes  Jacob  Schoenhof,  a  well  known  tariff  expert,  in  The 
Forum,  of  January,  1902.  He  shows  that  our  importations  of  protected 
fabrics  consist  of  fine  woolens,  silks,  gloves,  laces,  and  hosiery,  which  are 
not  produced  in  this  country  at  all ;  that  our  tariff  duties,  often  passing 
100  per  cent,  are  in  many  cases  several  times  higher  than  those  of  France 
and  Germany  ;  and  that  our  per  capita  use  of  wool  has  fallen  from  8.2 
pounds  six  years  ago  to  4^  pounds,  the  smallest  among  civilized  peoples. 


432  TJie  Plain  Facts  as  to  the  Tariff. 

Reform  of  the  Tariff  by  Its  Friends,  the  Republican 
party,  despite  outspoken  advocacy  of  such  reform,  at 
least  in  reciprocity,  by  many  of  the  party's  ablest  men 
and  leading  newspapers,  will  therefore  be  impossible,  to 
the  slightest  extent,  until  a  majority  of  the  Senate, 
whose  ratification  the  reciprocity  treaties  await,  or  until 
the  House,  in  new  legislation,  can  look  beyond  the 
clamorous  protected  interests  by  which  they  are  beset.' 
But  from  such  delay,  if  continued,  tariff  reform  will  only 
gather  power,  to  rise  again  as  it  did  in  the  Democratic 
victories  of  1884,  1890,  and  1892.  To  those  who  gave 
it  force  in  these  years  are  now  joined  many  additional 
manufacturers  with  whom  a  need  for  foreign  markets  has 
arisen,  and  many  additional  supporters  among  the  com- 
mercial classes  of  the  Northeast.  The  farming  class  also^ 
and  the  general  public,  it  may  be  asserted,  understand 

There  are  cases  where  our  duties  reach  289  and  379  per  cent.  The  high 
duties  in  most  of  the  important  cases  prohibit  importation  of  goods  to  be 
obtained  otherwise.  In  denying  that  the  duty  is  added  to  price,  a  clinch- 
ing argument  is  that  when  the  duty  on  steel  rails  was  $z%  a  ton  their  total 
price  here  fell  below  that  sum.  It  is  not  mentioned  that  foreign  rails 
were  not  then  imported  at  all.  The  379  per  cent  referred  to,  it  is  need- 
less to  say,  is  not  added  to  price.  Some  such  innocent  claims  are  made 
by  Congressmen  in  The  Independent  of  May  29,  1902.  Shearman  (page 
633)  quotes  from  noted  protectionists  a  long  list  of  arguments  in  couples 
that  are  squarely  contradictory.  The  reason  is  evident  why  their  witness 
agreed  not  together.  Perhaps  it  was  unconsciously  that  with  protection's 
gains  they  were  suborned. 

1  The  First  Republican  House  Passed  the  Lowest  Tariff,  that  of 
1857,  lowering  the  Walker  revenue  tariff  of  1846.  When  the  tariff  was 
slightly  lowered  in  1870  Republicans  "like  Garfield  and  John  Sherman 
repeatedly  declared  themselves  to  be  seeking  free  trade  along  the  road  of 
protection."  (Schoenhof. )  The  slight  reduction  of  the  tariff  in  1883 
was  made  with  Republican  cooperation.  Then,  as  at  present,  revision  was 
desired  by  the  West,  and  by  some  Eastern  manufacturers  needing  cheaper 
raw  materials.  But  the  reduction  then,  instead  of  settling  the  question,  was 
followed  by  Cleveland's  election  on  a  tariff  reform  platform,  and  by  the 
strong  but  unsuccessful  effort  of  l888  to  lower  the  tariff  by  the  Mills  bill. 


The  Tariff  Question  as  it  Stands  To-Day,        433 

now  more  clearly  the  unscrupulous  use  made  of  the  tariff 
by  some  trusts,  the  ability  of  leading  protected  industries 
to  meet  unaided  any  foreign  competition,  and  the  heedless 
selfishness  with  which  protected  producers  stand  together, 
and  resort  to  all  kinds  of  bargaining  and  log-rolling.^ 

Forces  Making  for  TariflF  Reform. —  Congressmen  Dick, 
Babcock,  and  Littlefield  said  they  could  not  face  their  con- 
stituents if  they  were  to  vote  tariff  favors  to  Cubans  with- 
out voting  some  to  Americans  also.  Mr.  Littlefield,  cor- 
roborated by  one  of  Boston's  largest  manufacturers,  said 
that  for  American  steel  sold  in  England  at  95  cents  per 
100  pounds  our  shipbuilders  must  pay  $1.65.  Among 
the  House  leaders  General  Grosvenor  has  admitted  that 
tariff  revision  is  inevitable  ;  and  Speaker  Henderson  has 
written  —  "That  there  could  be,  wisely,  revision  of  cer- 
tain parts  of  the  tariff  laws,  no  sane  man  will  attempt 
to  deny."^  Governor  Cummins  of  Iowa,  in  different 
speeches,  says  Western  Republicans  want  direct  reduc- 

*  Claiming  All  the  Duty,  No  Matter  How  High.  —  Protected  interests 
are  opposing  the  reciprocity  treaty  with  France  for  a  reduction  of  lo  per 
cent  in  the  duty  on  imitation  jewelry,  when  the  duty  remaining  is  57  per 
cent ;  for  a  reduction  of  7  per  cent  from  a  duty  of  65  per  cent  on  perfumery; 
and  for  reductions  that  leave  duties  on  hosiery  of  from  51  to  71  per  cent. 
Fruit  growers  object  to  the  treaty  reducing  by  a  fifth  the  duty  of  one  cent  a 
pound  on  Jamaica  oranges  and  lemons.  Though  the  evident  effort  is  to 
stave  off,  at  all  hazards,  a  revision  of  the  tariff,  such  presumption  on  the 
public  must  have  the  effect  to  hasten  it.  Oranges  at  20  to  50  cents  a  dozen 
are  beyond  the  means  of  most  people.  Who  can  estimate  the  benefit  of 
being  allowed  to  use  liberally  these  luscious  fruits,  practically  necessary  in 
sickness  ?  It  is  hard  to  believe  that  our  orange  regions  are  so  poor  in  re- 
sources as  not  to  afford  the  growers  a  living  without  this  tax  on  the  public. 
If  so,  it  is  still  harder  to  believe  that  the  countiy  would  not  be  better  off  if 
we  had  no  orange  industry  at  all.  The  growers  in  a  right  mood  would  not 
ask  the  nation  to  make  their  living  for  them  to  enable  them  to  buy  other 
people's  goods.  They  must  have  been  drawn  in  by  a  system  that  offers 
protection  to  all,  that  it  may  have  support  from  many  voters. 

*  The  Nation,  March  27,  1902. 
28 


434  ^/^^  Plain  Facts  as  to  the  Tariff. 

tion  or  reciprocity  by  which  protected  goods,  especially 
those  of  trusts,  are  actually  reached ;  that  they  will 
not  endure  paying  higher  prices  at  home  than  American 
manufacturers  charge  abroad,  while  Europe  retaliates  by 
shutting  out  American  farm  products  and  agricultural 
machinery/  Mr.  Kasson  says  we  are  at  the  parting  of 
the  ways,  and  must  lower  our  tariff  barriers  or  provoke 
retaliation.  President  Roosevelt  is  believed  to  have 
chosen  Governor  Shaw  as  Secretary  of  the  Treasury  be- 
cause of  his  able  advocacy  of  mutual  concessions  in 
foreign  trade.  The  various  bills  lately  introduced  in 
Congress,  but  suppressed  in  committee,  for  removing 
duties  on  cattle,  beef,  steel,  lumber,  etc.,  would  almost 
certainly  be  favored  by  a  large  majority  of  the  people  if 
a  popular  vote  could  now  be  taken. ^  The  growth  of  our 
industries,  and  the  necessity  of  receiving  the  goods  of 
foreigners  in  order  to  sell  to  them,  have  produced  a 
marked  change  ^  in  Republican  sentiment  on  the  tariff 
since  1888.  That  year  the  emphasis  was  on  protecting 
the  home  market  against  the  perils  of  increased  foreign 
trade.     As  late  as  1894  Mr.  Reed  hoped  we  should  be 

'"  Threatened  retaliation  has  no  terror  for  the  Eastern  manufacturer. 
He  knows  it  will  strike  only  the  farmers  of  the  West."  (Adlai  Stevenson.) 
But  many  manufacturers  of  metal  goods  along  the  coast  desire  free  trade  in 
the  crude  and  partially  manufactured  iron  that  is  their  raw  material.  Paint 
makers  say  the  tariff  on  chemicals  prevents  their  meeting  competition  abroad. 
Producers  everywhere  that  are  well  able  to  meet  prices  are  realizing  that  wc 
must  accept  more  goods  in  exchange. 

'^  Ready  for  Free  Trade  in  Foodstuffs. — "  To  really  strike  these  trusts 
a  serious  blow,  the  club  used  must  be  the  tariff.  A  special  message  from 
President  Roosevelt  urging  the  repeal  of  all  tariffs  on  foodstuffs  would 
just  now  go  to  a  Congress  will  disposed  to  act  upon  the  suggestion.  With 
the  tariffs  abolished,  the  beef  and  all  other  foodstuff  trusts  would  almost 
instantly  disappear." — Baltimore  American  (Republican). 

'  Senator  Beveridge,  in  the  main  address  of  the  Indiana  Republican 
convention,  said  protection  exists  for  business,  not  business  for  protection  ; 


The  Tariff  Question  as  it  Stands  To-Day.        43  5 

able  to  consume  all  our  products  at  home.  Now  the 
emphasis  is  on  finding  outlets  for  the  surplus. 

that  "  as  it  ceases  to  aid  and  begins  to  fetter  the  nation's  industry,  our  tariff 
must  be  modified,  but  the  change  must  be  made  with  knowledge,  cau- 
tion, and  judgment."  {The  Outlook,  May  3,  1902.)  The  Massachusetts 
Republicans  declared  for  "  wise,  discriminating,  and  business-like  reciproc- 
ity," as  "  not  inconsistent  with  an  adequate  measure  of  protection  to  Ameri- 
can industries." 

American  Capital  Going  to  England.  —  Robert  P.  Porter,  President 
McKinley's  special  expert  to  study  tariff  conditions  in  our  Spanish  depend- 
encies, Superintendent  of  the  Census  of  1890,  and  a  leading  protectionist 
and  newspaper  correspondent  in  England  twenty  years  ago  (Roberts,  270) 
—  says  that  because  free  trade  England  has  the  lowest  freight  rates  every- 
where, and  is  the  best  place  to  distribute  from,  the  American  Westinghouse 
Company  is  building  there  a  plant  to  employ  6,000  men,  and  an  American 
type-setting  machine  company  (the  Linotype)  a  similar  great  plant ;  and 
that  our  steel  trust  could  easily  move  to  England,  use  Cuban  ore  without 
duty,  and  ship  every  where  to  good  advantage.  He  writes  :  "The  remedy? 
Extend  American  trade  so  our  products  will  be  distributed  from  here  as 
conveniently  as  they  can  be  from  there.  That  is  one  of  the  objects  of  reci- 
procity. The  colossal  industrial  combinations  are  playing  havoc  with  the 
accepted  theories  of  political  economy." 

Warnings  of  Retaliation. — Frederic  Emory,  Chief  of  the  United 
States  Bm-eau  of  Foreign  Commerce,  wrote  as  follows  for  the  World' s 
Work  of  January,  1902  :  *'  American  industries  are  establishing  plants  in 
England  in  order  to  obtain  the  benefit  of  minimum  tariff  rates  from  Euro- 
pean countries  which,  in  the  absence  of  reciprocal  agreements,  may  con- 
tinue to  enforce  the  maximum  rates  against  the  United  States,  if  they  do 
not  make  them  still  higher.  The  same  thing  is  being  done  in  Germany  and 
Belgium  by  some  of  our  capitalists.  ...  If  we  make  no  concessions  we 
may  ultimately  find  ourselves  face  to  face  with  impassable  barriers  raised  by 
European  nations  against  our  manufactured  goods."  Mr.  Emory  said  also 
in  the  same  article  :  "The  position  of  isolation  and  exclusiveness,  now  that 
we  are  producing  more  than  we  can  consume,  would  inevitably  mean  reple- 
tion, stagnation,  and  finally  decay." 

George  E.  Roberts,  Director  of  the  Mint,  says  the  "  recent  expansion  of 
our  exports  is  based  on  elements  of  superiority  that  will  endure,  but  that 
superiority  will  avail  little  unless  our  relations  with  other  peoples  are  those 
of  comity  and  reciprocity.  .  .  .  The  policy  of  doing  our  own  work  com- 
pletely .  .  .  will  sacrifice  our  advantages."  {^Public  Opinion,  1902,  p, 
40. )  All  persons  named  above,  except  Mr.  Stevenson,  are  Republicans, 
and  all  are  men  of  ability. 


436  TJie  Plain  Facts  as  to  the  Tariff. 

John  Charlton,  in  The  Forum  of  January,  and  The  Independent  of 
March  20,  says  the  drift  of  opinion  in  Canada  is  toward  resisting  the  United 
States  by  giving  tariff  rebates  to  other  lands  admitting  free  Canada's  natural 
products.  He  says  Canada's  tariff,  less  than  half  ours  in  percentage,  ad- 
mitted from  us  in  190I  ^56,000,000  of  imports  on  its  free  list,  while  we  ad- 
mitted free  from  her  only  gold  dust  and  nuggets  ;  that  Canada  (exports  to 
us  in  1901  only  (^43, 000,000,  against  ^108,000,000  of  imports  from  us), 
buys  from  us  63  per  cent  of  all  her  imports,  being  our  third  largest  cus- 
tomer, and  our  first  for  manufactures  (^63,000,000  in  1900)  ;  and  that 
by  a  large  majority  Canadians  have  made  up  their  minds  to  meet  us,  if  we 
make  no  change  in  their  favor,  with  the  same  kind  of  a  tariff  that  we 
enforce  toward  them.  In  late  years  Canada  has  been  drawn  far  into  pro- 
tection. She  even  has  a  system  of  bounties  for  steel  making,  as  Germany 
has. 

A  German  authority,  in  xkitWorld^  s  Work  of  May,  1902,  says  the  main 
purpose  in  the  proposed  change  of  the  German  tariff  (averaging  13  per  cent 
against  our  51  per  cent)  is  either  to  force  us  to  admit  German  goods  more 
liberally,  or  to  cut  down  our  sales  to  Germany,  which  for  four  years  have 
been  double  her  sales  to  us.  He  says  the  new  bill  raises  the  German  aver- 
age to  18  per  cent,  but  50  to  60  per  cent  on  some  American  products. 
Our  exports  to  Germany,  now  nearly  ^200,000,000  a  year,  were  only  ^40,- 
000,000  twenty  years  ago,  while  our  imports  from  her  have  increased  very 
little  in  fifteen  years.  Emperor  William,  in  a  recent  private  conversation, 
favored  "  a  blockade  against  American  competition." 

Our  Own  Guns  Turned  Against  Us. — Great  Britain,  in  her  ;?i,ioo,- 
000,000  excess  of  imports  in  1900,  can  well  bear  paying  out  of  her  capital 
(so  much  dreaded  by  protectionists)  in  the  way  now  involved.  It  is  re- 
placed with  other  kinds  of  capital  far  better — steel  products  and  improved 
machinery  Americans  sell  cheaply  abroad,  the  world's  best  factories  built 
in  Europe  by  Americans,  and  such  investments  as  C.  T.  Yerkes'  $75,000,- 
000  put  into  new  underground  railways  in  London.  All  our  immense  sales 
of  machinery  and  materials  to  foreigners  have  improved  their  capital,  and 
in  future  competition  will  be  our  own  guns  turned  against  us.  To  a  large 
extent,  when  the  rush  is  over,  they  will  again  prefer  their  own  makes. 
The  last  report  of  the  British  Egyptian  governor  said  that  "the  contracts 
placed  in  the  United  States  have  been  disappointing ;  none  were  placed 
there  in  1901."  Loud  complaint  of  the  American  invasion  has  doubtless 
been  due,  not  to  despair,  but  to  a  knowledge  that  by  waking  up  the  for- 
eigners could  meet  it.  They  must  do  so,  or  they  cannot  keep  on  buying  of 
us.  Loss  to  British  shipping  by  sale  of  the  White  Star  and  other  lines  to 
the  American-controlled  trust  may  be  overbalanced  by  tremendous  prices 
paid,  and  largely  in  cash,  not  simply  in  trust  stock.  When  the  close  of  the 
Boer  war  (ended  May  31)  releases  nearly  2,000,000  tons  of  shipping  from 


The  Tanff  Question  as  it  Stands  To-Day.        43  7 

army  carrying,  it  is  expected  by  some  experts  that  ocean  freights,  already 
falling,  will  drop  low,  and  prove  the  world's  recent  shipbuilding  to  have 
been  overdone.  (^The  Nation,  May  15,  1902.)  (The  shipping  trust  has 
served  America  well  by  killing  the  ship  subsidy  bill.  This  trust  and  its 
railroads,  though  by  pooling  with  the  German  lines  rates  are  to  be  raised, 
cannot  oppress  our  people  if  Congress  strengthens  the  Inter-State  Law 
with  the  vigor  President  Roosevelt  is  showing  in  restraining  the  Big  Six 
meat  trust,  including  Cudahy  and  Schwarzchild,  aided  by  an  unprecedented 
boycott,  which  has  so  lessened  consumption  as  to  leave  thousands  of  the 
meat  trust's  men  unemployed.) 

America  as  a  Peacemaker  is  the  title  of  an  inspiring  article  by  Frederic 
Emory  in  the  World'' s  Work  for  May.  The  present  internationalization  of 
industry  (investment  of  large  capital  where  advantages  are  best,  without 
regard  to  national  boundaries)  has  the  salutary  effect,  Mr.  Emory  shows, 
of  making  peace  specially  desirable  to  great  financial  interests  having  strong 
influence  over  government  policies.  By  investments  abroad,  estimated  as 
high  as  $450,000,000  a  year,  Americans  are  becoming  closely  interested  in 
maintaining  European  peace  and  prosperity — in  letting  her  people  live  for 
the  sake  of  their  trade.  The  outcome  may  be  her  regeneration  by  us, 
lifted  up  for  the  task  by  our  natural  endowment  in  this  land  of  promise. 
An  example  of  our  teaching  was  the  recent  raising,  by  American  contractors 
paying  high  wages,  of  British  bricklaying,  on  the  Westinghouse  plant,  from 
400  to  1,800  per  day.  The  result  of  this  movement  will  be  immeasurable 
benefit  to  humanity,  in  waking  up  stagnant  lands,  and  in  removing  from 
enlightened  peoples  protective  ideas  inherited  from  the  warring  ages  of  the 
past.  It  is  undoubtedly  true  that  nothing  so  makes  for  world  prosperity, 
peace,  civilization,  and  Christianity,  as  does  freedom  of  trade.     ( Page  301. ) 

Not  a  Hostile  Invasion. — That  America's  advance  in  the  foreign 
field  is  the  opposite  of  an  invasion  is  now  coming  to  be  understood.  The 
British,  since  learning  that  their  ships  taken  over  by  the  Morgan  trust  are 
not  to  be  put  under  the  American  flag,  perceive  that  the  movement  will 
accrue  to  their  advantage,  being  a  step  in  "the  advent  of  a  great  new 
factor  in  world  politics,  which  is  destined  ere  long  to  become  the  control- 
ling influence."  (N.  Y.  Times,)  The  London  Spectator  sees  in  it  com- 
mercial cooperation,  a  source  of  closer  relations.  Albert  Shaw  says  the 
shipping  combine  "  is  destined  to  increase  decidedly  the  intimacy  between 
England  and  America,  as  respects  investments,  trade,  and  relations  in 
general."  A  writer  in  Gunton's  for  May  says  present  dependence  on 
commerce  for  food  and  raw  materials  must  make  for  peace.  J.  D.  Whelp- 
ley  says  in  the  June  North  American  that  our  control  of  Europe's  supply 
of  food  and  materials  gives  us  greater  power  than  that  of  navies,  and  will 
do  more  for  peace  than  treaties.  But  to  withhold  England's  food  would 
harm  her  little  more  than  it  would  harm  our  producers,  who  have  and  can 


438  The  Plain  Facts  as  to  the  Tariff. 

The  Best  Service  to  be  Rendered  Their  Party  by  Re- 
publicans, it  now  seems,  is  by  outspoken  opinion  to 
release  their  representatives  in  Washington  from  the  toils 
of  insatiate  clamorers  for  protection,  who  are  concerned, 
not  about  their  party  or  their  country,  but  about  their 
own  private  gains.  The  elections  of  the  last  twenty 
years  have  clearly  revealed  the  presence  in  this  country 
of  a  considerable  class,  including  both  Republicans  and 
Democrats,  who  actually  hold  their  party  responsible 
for  its  action  or  non-action,  and  rebuke  it  by  voting 
against  it  when  it  proves  unfaithful  to  its  trust.  Though 
stigmatized  as  bolters  and  mugwumps,  they,  together 
with  the  independents,  are  really  the  saving  remnant, 
which  with  any  party  prevents  the  tyranny  of  a  majority, 
held  together  in  excesses  by  false  notions  of  party  fealty, 
from  approaching  in  badness  the  tyranny  of  a  despot  or 
an  oligarchy.  The  selling  of  Joseph  by  his  envious 
brethren  would  not  have  taken  place  if  the  mugwump 
Reuben  had  been  present  at  the  time.  By  reason  of 
the  recently  divided  condition  of  the  Democratic  party, 
owing  to  its  split  on  the  silver  question,  the  Republican 
party  has  been  in  danger  of  being  drawn  to  self-in- 
juring extremes  in  granting  and  continuing  protection. 
By  its  own  fair-minded  voters,  therefore,  it  must  be  re- 
strained if  it  is  to  keep  within  the  paths  of  justice 
and  safety. 

get  no  other  market.  Her  money  and  ships  would  get  a  large  share  of  the 
world's  supply,  and  bring  with  high  prices  enlarged  new  crops  in  a  few 
months. 

But  America's  European  investments  are  probably  overestimated. 
New  York  has  lately  borrowed  millions  repeatedly  in  Europe.  Sale  of 
drafts  on  these  sums  has  barely  kept  exchange  below  the  point  of  gold 
shipments.  Our  export  balance  for  the  year  to  June  30  will  show  a  falling 
off  of  about  a  quarter. 


The  Tariff  Question  as  it  Stands  To-Day.        439 

The  Tariff  to  be  the  Issue  in  Approaching  Elections.  — 

By  the  enactment  of  the  single  gold  standard  law  of 
1900,  and  by  an  increase  of  the  world's  annual  gold 
product  which  Professor  Shaler  believes  will  soon  raise 
it  to  double  its  volume  in  1896,  and  later  almost  to  the 
point  of  loss  from  excess/  the  silver  question  has  been 
settled  —  for  all  time  it  is  to  be  hoped.  War  questions, 
always  serviceable  to  draw  attention  from  domestic  evils 
requiring  remedies,  are  gradually  disappearing  from  the 
Congressional  program.  If  our  protected  interests  will 
allow  the  Cubans  a  chance,  they  and  the  Filipinos  will 
soon  be  well  started  toward  settled  industry  and  peace. 
The  Isthmian  Canal  project,  whatever  the  delays,  is 
probably  supported  by  too  large  a  majority  in  both 
parties  to  occupy  much  time  in  Congress.  Therefore 
the  tariff  question,  with  the  crying  need  for  reduction  of 
revenue,  for  extending  our  markets  in  other  lands,  and 
for  correcting  the  abuses  of  monopolistic  trusts,  cannot 
long  be  held  in  the  background.  Almost  certainly  it 
will  be  the  main  issue  in  the  Congressional  election  next 
fall  —  one  of  the  off-year  elections  in  which  it  has  re- 
peatedly been  the  force  behind  a  tidal  wave  of  victory  for 
the  opposition  party. 

To  Reform  the  Tariff  in  Good  Times  would  seem  to 
be  highly  desirable.  While  no  change  is  advocated  that 
would  seriously  harm  as  a  whole  any  industry  having  a 
reasonable  right  to  exist  to  its  present  extent,  yet  to 
bear  any  uncertain  change  at  all,  or  to  receive  any  shock, 
however  slight,  a  time  of  strength  is  to  be  chosen  for 
the  delicate  organism  of  business.  In  the  present  period 
of  prices  and  profits  naturally  high  from  brisk  demand, 
industries  would  feel  but  lightly  the  adverse  effects  of 

^  International  Alonthly,  Burlington,  Vt. ,  November,  1 901. 


440  The  Plain  Facts  as  to  the  Tariff. 

moderate  changes  in  the  tariff,  and  could  adjust  them- 
selves to  new  conditions  with  the  minimum  loss  ;  while 
there  would  be  time  for  the  benefits  of  tariff  reduction  to 
appear,  in  cheaper  and  better  raw  materials  for  manufac- 
turers, in  enlarged  consumption  of  goods  slightly  low- 
ered in  price,  and  in  wider  sale  of  our  products  to  for- 
eigners whose  means  of  payment  we  would  then  accept. 
Undoubtedly,  with  currency  dangers  out  of  the  way, 
and  with  stock  speculation  somewhat  spent  in  its  force 
for  evil,  the  tariff  might  now  be  thoroughly  reformed 
by  its  friends,  who  would  not  be  distrusted  like  its  ene- 
mies ;  the  industrial  body  be  relieved  of  a  stimulated 
condition  essentially  diseased  ;  the  stinted  living  of  many 
millions  materially  increased  through  lower  prices  ;  and 
the  good  times  extended  without  break  much  farther 
into  the  future  than  would  be  the  case  otherwise.  But 
the  pessimistic  mood  of  hard  times  is  decidedly  unfavor- 
able for  a  change  of  the  tariff.  Then,  for  slight  reason, 
people  make  matters  worse,  by  closing  factories,  ceasing 
to  build,  and  stinting  their  personal  consumption.  A 
change  then  tends  to  cause  the  maximum  harm,  with 
greatest  delay  of  the  good  effects,  and  longest  continu- 
ance of  the  depression. 

Keformed  the  Tariff  will  be,  Sooner  or  Later,  and  pretty 
thoroughly,  whatever  the  tactics  adopted  for  delaying 
action,  and  for  holding  on  to  every  jot  and  tittle  of  pro- 
tection. To  expect  less  would  be  to  give  up  faith  in  the 
American  people's  capacity  for  progress.  There  is  rea- 
son for  believing  that  a  majority  of  them  cannot  be  fooled 
all  the  time.  Never  was  a  more  complete  deception 
fastened  on  a  nation,  than  this  principle  of  protection  as 
now  taught  and  applied.  The  preceding  chapters  expose 
its  sophistry.      It  is  not  the  fault  of  the  forces  of  tariff 


TJie  Tariff  Question  as  it  Stands  To-Day.        441 

reform  that  something  has  to  be  done.  Not  by  them  was 
the  industrial  body  brought  into  a  condition  requiring  a 
surgical  operation.  If  their  counsel  had  been  followed, 
our  industrial  growth  would  have  been  natural  and 
healthy,  and  there  is  no  reason  to  believe  that  it  would 
have  lacked  variety  or  volume.  Those  who  most  ably  ad- 
vocated protection  in  the  earlier  decades,  notably  the 
German  Frederick  List  and  Henry  Clay,  excepted  raw 
materials,  and  expressly  taught  that  it  was  to  be  a  tempo- 
rary method  of  industrial  education  for  a  nation  not  yet  in 
the  front  rank  of  civilization.  If  zve  are  not  now  in  the 
front  rank,  who  are?  And  when  are  we  to  be  ready  for  be- 
ginning tariff  reform  in  earnest,  if  not  now,  with  the 
world  standing  dazed  before  the  mighty  achievements  of 
our  unequalled  people  amid  unequalled  resources  ?  ^ 

We  Cannot  Leave  Well  Enough  Alone,  as  the  protected 
interests  urge,  with  the  eagerness  of  direct  personal  gain. 
We  are  not  running  things  by  ourselves.     So  long  as 

1  Control  of  the  Trusts  Will  Aid  in  Reform  of  the  Tariff,  in  addition 
to  the  first  fruits  of  preserving  the  all-important  force  of  competition.  Pro- 
fessor Clark  has  pointed  out  that  independent  producers,  if  protected  from 
the  clubs  of  the  trust  by  his  plan  (Chapter  VI.)  will  so  increase  product 
and  lower  price  at  home  that  the  trust  cannot  hope  for  monopoly  profit 
through  the  tariff.  Enlarged  sales  abroad  will  then  become  its  chief  means 
of  adding  to  gains  ;  and  its  own  tariff  duty,  so  far  as  made  useless  by  price- 
lowering  home  competition,  it  will  readily  give  up,  to  induce  foreigners  to 
lower  their  retaliatory  tariffs,  and  to  induce  home  producers  of  other  goods 
to  submit  to  the  tariff  reductions  necessary  for  opening  foreign  markets. 
Then,  having  no  longer  that  portion  of  the  duty  by  which  it  had  exacted 
monopoly  gains,  the  trust  may  have  no  desire  to  drive  out  competitors. 
The  people  also,  if  protected  by  independents  from  trust  extortion,  will  pre- 
fer tariff  reduction  of  the  gradual  kind,  which  preserves  the  industry  and 
gives  all  independents  a  chance,  instead  of  the  heavy  and  risky  reduction 
necessary  by  itself  to  take  away  monopoly  power.  (Clark,  47. )  We  shall 
then  have  the  advantage  of  all  that  centralized  capital  can  achieve  toward 
improving  and  cheapening  goods,  and  toward  dominating  the  world's 
markets  ;  though  capital  in  other  lands  will  soon  be  centralized  likewise. 


442  The  Plain  Facts  as  to  the  Tariff, 

abnormal  and  unjust  conditions  remain  in  society,  the 
silent  forces  of  nature  keep  on  grinding,  until  by  and 
by  trouble  breaks  out.  Harder  times  are  now  coming 
(some  even  fear  a  crash  from  trust  speculation),  and 
largely  because  of  easily  removable  wrongs  of  protection. 
From  a  man  earning  $1.25  a  day,  and  losing  a  quarter 
of  his  time,  we  cannot  take  many  dollars  in  higher  prices 
of  living  (true  in  practically  every  case  where  protection 
protects),  without  keeping  him  and  his  family  too  poor 
to  be  most  useful  to  his  country  and  its  business,  and  too 
dull  or  discontented  to  promote  what  is  good  in  govern- 
ment and  in  society.  Though  the  dinner-pail  be  full, 
men  made  in  the  image  of  God  cannot  live  from  it  alone. 
We  cannot  prevent  our  people  from  gaining  by  accepting 
a  foreigner's  goods,  without  damming  back  our  own  sur- 
plus on  people  thereby  depressed,  and  rendered  unable 
to  buy  the  goods  of  our  other  producers.  We  can  enjoy 
reading  the  magazine  articles  showing  how  many  millions 
we  shall  save  when  this  or  that  new  industry  written  up 
supplies  all  our  demand ;  but  we  cannot  thus  cease  buy- 
ing of  foreigners  without  causing  them  to  cease  buy- 
ing an  equal  amount  of  us,  and  from  our  profitable 
industries  that  need  no  tariff  contribution.  We  cannot 
permit  favored  interests  to  enjoy  unfair  gains  from  year 
to  year  without  making  scheming  and  trickery  enticingly 
profitable,  and  spreading  the  effort  to  get  from  the  ranks 
of  the  plundered  into  those  of  the  plundering.^  A  man, 
or  a  society,  is  not  doing  well   enough  unless  each  is 

^Unjust  Gains  Corrupt  a  People. — An  explanation  of  the  flagrant 
corruption  (see  Chapter  V.)  in  Pennsylvania  in  1901  was  given  by  "  A 
Pennsylvania  Quaker  "  in  an  article  in  the  Atlantic  Monthly  of  January, 
1902.  He  says  that  vast  industries  making  use  of  legislative  favor  were 
"  drawn  by  irresistible  allurements  to  give  a  mercenary  tone  to  public  life. 
.   .  .   So  it  has  come  to  pass  that  the  coal  and  iron  of  the  hills,  and  their 


TJie  Tariff  Question  as  it  Stands  To- Day.        443 

striving  for  all  the  good  justly  and  properly  within  reach. 
Contentment  and  resignation  are  not  virtues  under  evil 
conditions  that  can  be  improved.  The  facts  that  other 
nations  fare  worse,  and  that  we  can  put  up  with  less  than 
the  most  in  reach,  are  not  to  be  listened  to  by  people 
knowing  their  rights  and  possibilities.  Many  a  man 
does  well,  and  enjoys  life,  who  has  lost  an  arm.  Nature 
has  given  us  bountiful  blessings,  but  we  are  unworthy  if 
we  fail  to  get  and  to  use  them  all. 

It  is  Because  the  Tariff  Question  is  in  Politics  that  it 
has  been  characterized  by  so  much  insincerity.  In  busi- 
ness this  would  not  be  tolerated.  There  deception  is 
quickly  resented.  Candid  honesty  has  not  been  the  best 
policy  in  politics,  because  the  mass  of  the  people,  the 
educated  perhaps  not  less  than  the  ignorant,  will  usually 
consent  to  the  taking  of  liberties  with  the  truth  for  the 
sake  of  party  advantage. 

The  Whole  Matter  of  Human  Welfare  is  a  Question  of 
Knowledge,  and  of  wise  use  of  it.  Very  slowly  has  ex- 
perience taught  and  improved  the  race.  Harsh  censure 
must  be  withheld  from  the  ruling  classes  that  have 
gained  from  unjust  conditions,  and  have  attempted  to 
beat  back  the  march  of  progress.  Others  in  their  places 
would  doubtless  have  done  likewise.  Very  naturally  to 
them,  whatever  is,  is  right.  The  protected  landlords 
under  the  English  corn  laws,  which  starved  the  people 
by  raising  price  of  food,  piously  taught  that  God  intended 
many  to  live  in  poverty.  Southern  planters  quieted  con- 
inevitable  connection  with  legislation,  have  been  the  undoing  of  political 
morality."  Such  will  ever  be  the  result  of  exploiting  the  people  for  private 
gain.  There  is  too  much  money  in  protection  for  human  nature  ever  to 
withstand  its  temptations.  "  Forty  years  of  tariff  hypocrisy  and  deceptioo 
have  taught  us  that  a  wise  man,  before  starting  an  important  enterprise, 
secures  a  favoring  law  or  franchise."     (H.  W.  Seymour,  Chicago.) 


/}/)/{  The  Plain  Facts  as  to  the  Tariff. 

science  by  the  thought  that  the  blacks  were  born  to 
serve,  and  that  without  slavery  cotton  could  not  be 
raised.  Americans  now  benefited  by  protection  allay 
inward  suspicion  of  its  unsoundness  by  the  thought  that 
they  have  always  had  it,  and  that  it  is  necessary  for 
diversified  industry.  The  civilization,  Christianity,  and 
certain  support  possessed  by  negroes  because  of  their 
slavery,  were  put  forward  as  benefits  for  the  same  reason 
that  America's  wealth  and  growth  are  all  claimed  as 
results  of  protection.  Under  the  heaHng  effect  of  time, 
those  who  oppose  progress  are  soon  benefited  by  it  as 
much  as  those  who  carry  it  forward. 

The  People  Too  Easily  Deceived. — And  the  people  in 
general  are  little  less  to  blame.  Their  obvious  readiness 
to  be  deceived  suggests  deception  to  those  gaining  from 
it,  and  relieves  them  from  some  of  the  guilt.  Not  many 
have  had  thoughts  of  censure  toward  P.  T.  Barnum  be- 
cause it  was  from  profitable  experience  that  he  knew  the 
truth  of  his  famous  dictum  about  the  American  people. 
So  few  persons,  from  the  best  educated  downward,  make 
a  worthy  attempt  to  know  economics,  that  unsoundness 
in  a  tempting  policy  is  a  weak  bar  against  its  adoption. 

All  Classes  in  Fault. — Perhaps  the  scheming  of  capital- 
ists for  subsidies  and  protection  is  no  worse  in  evil  effects 
than  the  dependence  of  wage  workers  upon  favoring  laws 
hoped  for,  instead  of  on  industry,  frugality,  and  general 
self-help.  The  old  methods  of  proper  self-advancement 
seem  destined  to  prevail  always,  being  fixed  in  nature.  The 
purpose  of  patriotic  interest  in  government  is  to  help  it, 
not  to  get  direct  personal  gain.  Its  benefits,  as  nearly  as 
possible,  should  fall  impartially  upon  all,  like  the  air  and 
the  sunshine.  The  voting  public  must  make  the  govern- 
ment what  it  ought  to  be,  or  bear  the  consequences. 


TJie  Tariff  Question  as  it  Stands  To- Day.        445 

The  Principles  of  Getting  a  Living,  and  the  public 
duties  they  impose,  are  doubtless  as  easy  to  discover 
and  follow  as  they  could  be  without  weakening  mind  and 
character.  Men  could  not  ask  for  a  system  of  nature  more 
favorable  to  them.  One  reason  why  the  laws  of  society 
are  so  difficult  to  discern  is  the  longsuffering  of  nature  — 
the  delay  with  which  their  violation  is  punished.  The 
conditions  of  existence  are  evidently  fitted  for  the  high- 
est average  of  human  welfare.  The  natural  laws  of 
economics  eventually  force  men  to  be  just  for  the  sake 
of  their  own  gain.  If  people  were  as  ready  to  perform 
duties  as  to  clamor  for  rights,  a  comparatively  perfect 
society  would  not  seem  unattainable.  The  rights  of  each 
depend  upon  performance  of  duty  by  all. 

Yet  Now,  as  Never  Before,  There  is  Reason  to  Take 
Courage.  —  Willing  acknowledgment  of  duty  is  clearly 
becoming  more  common.  There  is  promise  in  the  in- 
creasing admission  by  both  labor  and  capital  that  friendly 
bargaining  —  mutual  recognition  of  rights  and  duties 
that  can  never  be  brushed  aside  among  Americans — is 
the  proper  method  of  settling  their  differences.  There  is 
promise  also  in  the  loosening  of  party  fetters,  in  the 
growing  practice  of  voting  in  obedience  to  conscience 
instead  of  to  committees.  A  time  of  vastly  greater  peace 
and  unity  seems  to  be  approaching.  In  important  be- 
ginnings it  seems  to  have  arrived.  Knowledge  and 
agreement  are  the  first  requisites  for  removing  evils  in 
society  —  for  realizing  the  greatest  good  of  the  greatest 
number.  By  one  person  at  a  time,  opening  his  mind  to 
truth,  the  number  of  those  who  know  and  agree  will 
increase.  Economic  knowledge  is  the  kind  specially 
required.  To  contribute  to  its  spread,  this  book  is 
written. 


INDEX. 


ADAMS,  C.  F.,  page  59 
■il  Adams,  H.  C,  60,  106,  136,  248 
Advertising,  not  a  waste,  170 
Aldrich  report  on  wages,  360 
Anti-trust  laws,  4,  9,  131,    154,  185 
Atkinson,    Edward,    277,    355,  370, 

379,  380,  397 
Austin,  O.  P.,  279,  285,  287 

"DALANCE  of  trade,  240,  256,  278, 
■^  285,  305,  384,  430,  436 
Babcock,  J.  W.,  409,  426,  433 
Beetsugar.lS,  62,  112,  135,  414-431 
Bemis,  E.  W.,  79,  124,  132 
Blaine,  J.  G.,  307,  388 
Bok,  E.  W.,  231 

Bonuses  to  railroads,  40,  60,  83,  422 
Bowen,  Francis,  334-349 
Bounties  to  industry,  119,  241,  274, 

297,  300,  314,  416-431 

Boycotting  trust  goods,  113,  135,437 

Brooks,  J.  G.,  113,  214 

Bullock,  C.  J.,  13,  106,  114,  118, 
123,  136,  180,  183,  215,  259,  260, 
288,  308,  318,  359,  360,  406 

CANADA,  railroads,  82,  83,  422  ; 
telegraphs,  89  ;  succession  taxes, 
210;  trade  of,  287  ;  trade  with 
United  States,  302, 325 ,  346-35 1 , 
362,  410,  436 


Cleveland,   Grover,    122,   392,  395, 

432 
Clews,  Henry,  27,  215 
Clubbing  of  competitors  by  trusts,  1 2, 

35,  134,  144,  149,  175,  214,  218, 

236,  267 
Coal  monopoly,  130 
Cobden,  Richard,  302,  328 
Collier,  W.  M.,  5,  26,  129,  132,  139, 

142,  193 
Colonies,  trade  with,  241,  260,  299, 

322,  418 
Commons,  J.  R.,  95,  235 
Competition,  as  the  life  of  trade,  17. 

32,  145,  147,  203,  211,  214,  221, 

225,  234  ;  excessive,  20,  34,  176- 

179,  184  ;  not  feared,  20,  22,  269  ; 

with  railroads,   46,  53,  190,  204  ; 

under  protection,   245,   267,  326, 

348,  358,  374,  416 
Concentration  of  capital,  18,  21,  160, 

167,  173,  208-236 
Consumption  of  wealth,    1 71,   246, 

251,  275,  293,  299,  304,  314,  323, 

333,  339,  377,  397,  420-442 
Corporation  laws,  125,  136-159,  215 
Cox,  Harold,  284 
Crosby,  E.  H.,  236 
Cuba,  159,  305,  343,  415-431,  439 

FkABNEY,  W.  D.,  60,  79 


Capital  invested  in  United  States  by      ^    Department  stores,  22,  178,  231 
foreigners,  278,  354,  378,  394  ;  in 
other  lands  by  Americans  and  Eu- 
ropeans, 280-289,  378,  435-437 

Capitalization  of  trusts,  5,  6,  25,  147 

Carey,  Henry,  353,  365,  388 

Carnegie,  Andrew,  7,  221,  222,  231 

China,  306,  311,  328,  375 

Clark,    J.    B.,    117,    132,    144,    155, 
187,  2i8,  236,  441 


Depression  of  business,  26,  28,  122, 

168,    183,    212,    291,    303,    392, 

404,  440,  442 
Dill,  J.  B.,  139 
Dingley  tariff  law,   254,   307,   396, 

398,  400,  403,  431 
Discrimination    in   freight   rates,    4, 

35,   61,   71,  Ii6,    122,    144,  191. 

197,  236 


447 


448 


Index. 


Diversity  of  industry,  241,  323,  333, 

340 
Dixon,  r.  H.,  76,  207 
Donald,  Robert,  116 

EDUCATION,   to  preserve  liber- 
ties,   104,    128,    143,    151,    159, 
205,  215,  232,  246  ;  to  increase 
production,  241,  244,  249,  270- 
272,   ZZZ,    336-338,    343,   356, 
369 
Ely,  R.  T.,  20,  43,   46,    102,    108, 
123,    124,    129,    142,    177,    210, 
218,  234,  301 
England,  see  Great  Britain 
Exports,  and  the  trusts,  19,  1 14,  165  ; 
of  different  countries,  287 

PARMERS  and  the  trusts,  5,  14, 

177 
Farming  and  protection,   274,  279, 

322,    324,    334,    340,    356,   372, 

382,  419-431 
Feudalism,  159,  212,  236,  240 
Flint,  C.  R.,  20,  27,  277 
Foster,  J.  W.,  389-391 
Free  list  in  tariffs,  242,  412,  428 
France,  20,  43,  49,  116,  211,  307, 

432  ;    trade    of,    224,    286,    303  ; 

protection  in,  297,  302,  320,  360, 

384  ;  taxation  in,  248,  339,  393  ; 

sugar  bounties,  422 
Franchises  to  corporations,  40,  92, 

96,  102 

GERMANY,  119,  129,  210,  271, 
285;  trusts  in,  29,  116,  134, 
162,  268,  421  ;  railroads,  49, 
55  ;  depression  in,  29,  182,  292, 
304  ;  protection  in,  274,  297, 
302,  306,  314,  320,  338,  393, 
436;  trade  of,  287,  311,  346, 
376  ;  wages  in,  366,  374,  385  ; 
sugar  bounties,  300,  314,  421- 
424  ;  trade  with  United  States, 
436 

Ghent,  W.  J.,  159,  334 

Giddings,  F.  H.,  185 

Giffen,  R.,  231 

Gold,  as  affecting  prices,  189  ;  in- 
crease  of,    239,    289,    397,    438 ; 


shipments  of,  256,  278,  281,  288, 
290-293,  316,  395,  438 

Good  will  in  business,  8,  23,  28 

Government,  control  of  railroads, 
44,  67,  79,  125,  195,  201  ;  own- 
ership of  railroads,  49,  56,  67, 
82-84,  108  ;  control  of  industry, 
136,  149,  211,  213-215,  441  ; 
ownership  of  mines,  128,  129 

Great  Britain,  trusts  in,  29,  1 16, 
139,  175,  219;  railroads,  50,  82, 
203  ;  telegraphs,  87  ;  municipal 
ownership,  107,  236 ;  income 
taxes,  210;  rents,  273-275; 
growth  of  industry,  161,  275,  284, 
319,  394,  436  ;  shipping  and  sub- 
sidies, 283,  295,  308,  320  ;  pro- 
tection in,  240,  260,  273,  299, 
301,  327,  345,  347,  382  ;  free 
trade  in,  117,  186-188,  275,  285, 
298,  352,  360,  374,  380,  396, 
435  ;  use  of  London  Exchange, 
282,  308  ;  excess  of  imports,  283, 
287,  436  ;  trade  with  United 
States,  294-297,  303-305,  435- 
437  ;  trade  taken  by  United  States, 
295,  3",  328,  376;  wages,  161, 
361,  366,  367,  374-378  ;  policy  to- 
ward sugar  trade,  299,  420-424 

Gunton,  George,  163,  319,  379,  385, 
399 

TTADLEY,  A.  T.,  40,  49,  50,  52, 

Aa    54,  63, 64,  66,  67, 75,  77,  82,  86, 

105,   126-128,   182,    183,    190- 

194,   198,   209,    213,  244,  266, 

268, 302, 303,320-325, 376,  Z'^Z 

Hall,  F.  S.,  188 
Hamilton,  Alexander,  260 
Havemeyer,  H.  O. ,  21,  112 
Hawaii,  389,  4 15-43 1 
Hill,  J.  J.,  II,  194 
Holt,  B.  W.,  5 
Hudson,  J.  F.,  36,  66 

IMMIGRATION,  279,   327,  364- 

^   367,  371,  418 

Industrial  Commission,  7,  11,  47,  54, 
60,  73,  74,  83,  84,  97,  109,  113, 
120,  121,  135,  138,  149,  151,  159, 
210,  319,  370 


Index. 


449 


Infant  industries,  243,  332,  358 
Ingram,  J.  K.,  240,  320,  338 
Interest,   as    affecting    shipments    of 

gold,      256,      283  ;    payment    of, 

between  nations,  279,  286,  289 
International  trusts,  117,  380 
Inter-State     Commerce     Law,     72, 

123-125,  150,  152,  159,  190,  196, 

201,  437 
Ireland,  as   affected   by   protection, 

261,  275,  285,  297 
Italy,  248,  286 

JAPAN,  256,  286,  306,  343 

J    Jefferson,  Thomas,  271 

Jenks,  J.  W.,  10,  14,  25,  26,  31,  1 16, 

119,  123,  142,  149,  152,  155,  156, 

161,  170,  225 
Jevons,  W.  S.,  318 
Johnson,  Emory  R.,  78,    125 
Johnson,  Joseph  F.,  308 
Johnson,  Tom  L.,  96,  97,  387 

TZNAPP,  M.  A.,  123,  124,  198 

LABOR,  demand  for,  as  affected 
by  trusts,  19,  175,  222  ;  by  ma- 
chinery, 229-231,  373-376;  by 
the  tariff,  360-386,  398,  402, 
430  ;  division  of,  45,  65,  226, 
307  ;  efficiency  of,  354,  375-377. 
386  ;  protection  of  workers  by 
law,  234 
Laissez  fah-e,  270 
Levasseur,   Emile,    188,    259,    337, 

360,  361,  367 
List,  Frederick,  338,  440 
Littlefield,  C.  E.,  433 
Lloyd,  H.  D.,  134 

■"Vf  ACHINERY,     in    cheapening 
■'■'-*■    product,    164,    273,    360,  385  ; 

cannot  be  too  efficient,  229 
Macrosty,  H.  W.,  129 
Manufactures,  American  exports  of, 

276,  29s,  314,  398 
Manufacturing,    American    colonial, 

260,  359  ;  later  growth  of,    263- 

268  ;  effect  of  on  intelligence,  229, 

320,  334-337>  345 


Market,  how  affected  by  protection, 

122,  159,  245,  255,  275-277,  294, 

299.  314-318,  330,  357,  368,  371, 

381,  391,  427-442 

Marshall,  Alfred,  32,  183,  229 

McKinley,  William,  138,  305,  307, 

397,  399.  404,  431 

McKinley  tariff  law,  307,  358,  399, 
403,  416 

Meade,  E.  S.,  188,  219 

Meat  trust,  14,  123,  159,  193,  236, 
252,  437 

Mercantile  doctrine,  239 

Mill,  J.  S.,  331,  345 

Money,  control  of  by  trusts,  235  ; 
inflation  of,  290,  385,  392  ;  in 
foreign  trade,  239,  241,  253-257, 
282,  290,  308,  316 

Monopoly,  profits,  8,  27,  30,  102, 
113,  128,  215,  325  ;  methods,  12, 
30,  36.  175  ;  kinds  of,  13,  17,  33, 
38,  160,  214;  in  raw  materials, 
14,  128,  150,  155,  235  ;  effect  on 
price,  29,  224,  346  ;  how  far  pos- 
sible, 218;  new  laws  for,  131,  149, 
152-154  ;  how  regarded  by  courts, 
132,  147  ;  effect  on  society,  31,  35, 
159,  220,  235  ;  from  protection, 
302,  325,  386,  413,  427-429 

Morals,  as  affected  by  trusts,  9,  20, 
21,  25,  181,  442 

Morgan,  J.  P.,  6,  24,  33,  130,  194, 
195,  203,  209,  295,  437 

NAVIGATION   laws,    241,    319, 

^    321,  409 

Nettleton,   A.   B.,   5,   21,   23,    146, 

148 
Newcomb,   H.  T.,  65,  74,  97,  124, 

125,  153,  197,  199.  203.  206 
New  Zealand,  212,  372 
Northern   Securities    Co.,    11,    141, 

215 

pvLEOMARGARINE    law,    159, 

^    251,  419 

Open  door  for  trade,  299,  306 

PANICS,  see  Depression 
Paper  trust,  130,  325 
Parsons,  Frank,  54,  85,  87,  109,  III 


450 


Index. 


Party  fealty,  94,  247,  305,  389,  438 
Passes,  given  by  railroads,  75 
Patents,  37,  43,  141,  174 
Patten,  S.  N.,  327,   333,   340-343. 

350,  386 
Pooling,    124,    144,    147,    153,   183, 

191,   202,  218,   221,  422 

Population,  as  lowering  wages,  231, 

370,  374-377,  418 
Porter,  R.  P.,  366,  429,  435 
Price,  how  affected  by  large  pur- 
chases, 167  ;  by  monopoly,  12, 
14,  19,23,  29,  160,  175,  224; 
by  protection,  252-256,  274,  291- 
297,  314-339,  347-356,  369-380, 
389,  402,  415-432  ;  lower  abroad 
than  at  home,  1 13,  154,  162-165, 

327,  376,  425,  433 

Primaries,  direct,  95 

Promoters,  6,  23,  157 

Publicity  in  corporations,  9,  36,  125, 
137-139,  148,  152-157,  235 

Public  opinion,  responsible  for  con- 
ditions, 94,  126,  143,  159,  200, 
213-216,  444 

RAILROAD  passenger  rates,  46, 
68,  79,  191  ;  speed,  50  ;  freight 
rates,  51,  71,  79,  191,  198,  201- 
205  ;  mileage  and  cost,  52  ;  con- 
solidation of,  194,  202 
Rebates,  35,  132,  201 
Reciprocity,     241,    298,    299,    302, 
305,     346,     373,    389-391,    399, 
408-437 
Reed,    T.    B.,    348-353,    380-384, 

407,  434 

Referendum,  94 

Reform,  of  city  government,  96, 
102  ;  of  corporation  and  railroad 
laws,  135-159,  189-207,  441  ;  of 
tariff,  122,  158,  246,  276,  294, 
305,  405-408,  426,  431-442 

Rent,  325,  326,  372 

Retaliatory  tariffs,  298,  301,  306, 
384,  408,  434-436 

Revenue,  tariffs  for,  241,  396 

Roberts,  E.  H.,  248,  261,  293, 
314,  315,  317,  318,  324,  331, 
339,  347,  366,  367,  374,  378,  403, 
435 


Rockefeller,  J.  D.,  33,  137,  194, 
215,  236 

Rogers,  J.  E.  T.,  275,  345 

Roosevelt,  Theodore,  137,  138,  156, 
201,  306,  420,  431,  434,  437 

Russia,  303,  309,  361,  379  ;  pro- 
tection in,  288,  298,  302,  306,  339, 
346,  374,  408 

OCHOENHOF,  Jacob,  252,  431-2 
^   Schwab,   C.    M.,   21,   114,  222, 

234 
Seligman,  E.  R.  A.,  82,  85,  109 

Shaler,  N.  S.,  439 

Shaw,  Albert,  222,  437 

Shearman,  T.   G.,  323,    353,    360, 

365,  379,  432 
Shipbuilding,    165,  259,    263,    289, 

293,  308 
Ship  subsidies,  159,  280,   308,    320, 

421,  425,  428,  437 
Shipping,   and   ocean   freights,   279, 

286,  295,  308,  320,  436 
Shipping  trust,  203,  235,  436-437 
Sidgwick,  Henry,  13 
Silver  question,  122,  395-397,  439; 

exports  of  silver,  278 
Slater,  Samuel,  263 
Smith,  Adam,    270,    273,  274,   302, 

320,  384 
Smuggling,  24O,  384 
Socialism,    106,  164,  177,  185,  203, 

211,  213,  233 
Spahr,   C.    B.,    130,   222,   249,  360, 

361,  367 
Standard     of     living,     and     wages, 

384 
Standard  Oil  Co.,   i,  9,  13,  14,  17, 

18,  35,  41,    123,    160,    i66,  209, 

214,  235,  258 
Stebbins,  G.  B.,  252,  347,  396 
Steel  rails  and  protection,  268,  317- 

319,  376,  425,  432 
Steel  trust,  see  United  States  Steel 

Corporation 
Stimson,  F.  J.,  133,   186 
Stocks  of  trusts  as  investments,  19, 

27,    223-225  ;    American    stocks 

held  in  Europe,  280,  289 
Strikes,  176,  186-188 
Subsidies,  see  Ship  Subsidies 


Index. 


451 


Sugar  trust,  13,  20,   73,    112,    124, 

13s,  161,  180,  414-431 
Sugar,     production    of,     tariff    and 

bounties,     112,     135,    389,    396, 

414-431 
Sumner,  W.  G.,  236,  268,  IZZ,  334, 

422 
Switzerland,  119,  287,  307,  412 

TARIFF,  in  Part  I.,  112,  121,  155- 
159,  161,  167,  188,  219,  235 

Taussig,  r.  W.,  113,  396 

Taxation,  of  franchises,  96,  154 ; 
of  earnings,  105  ;  of  monopolies, 
137,  142  ;  of  mineral  and  timber 
land,  235 

Taxes,  income  and  inheritance,  210, 
236  ;  who  pays  the  tariff  tax,  246, 
346  ;  tax  burden  in  different  lands, 

248,  339,  .370 
Taylor,  Benjamin,  376 
Telegraphs  and  telephones,  41,  85 
Thompson,  R.  E.,  388 
Tin-plate   trust,    26,   36,    113,   175, 

180,  401 
Trademarks,  43,  1 20,  252 
Trade  unions,  5,    159,    175,    185-8, 

223,  370,  376,  381,  383.  445 
Transportation,   effect  on  trade,  45, 

64,  65,    204,   303,   316,  329,  353, 

357.413,  435 
Traveling  salesmen,    169,  173,  182, 

257 
Trusts  in   Part  II.,   268,  292,  296, 

325,  327,  347,  350,  380,  392,  409, 
413,  427-439 

T  TNDERWRITERS  for  trusts,  24 

*^    United  States  Steel  Corporation, 

7,  10,   16,  24,  36,  140,  161, 

188,  219,  234,  236,  425,  435 


V 


ON  HALLE,  Ernest,  9,  14,  86, 
130,  133,  146,  181,  217 


WAGES,   how  affected  by  trusts, 
15,  19,  175,  222-224  ;  in  public 
service,  1 10  ;  in  cotton  industry, 
'63,   334  ;  rise  of,     161,   229, 
360-364,    380 ;    how    affected 
by   the   tariff,    188,    247,    334, 
347,  354,  357-386,  402,  406, 
418 
Walker,  F.  A.,  410 
Wanamaker,  John,  87,  93,  257,  293 
War,    preparedness   for,    241,    306, 
320  ;  effect  of  on  tariffs,  263,  301  ; 
wastes  of,  277,  370,  412 
Watered  stock,  8,    11,   24,  27,  40, 

126,  140,  162,  165 
Wealth,  concentration  of,  20,  33, 
157,  164,  209-211,  215,  232, 
236  ;  philanthropic  use  of,  225, 
232,  236  ;  waste  of,  in  useless  rail- 
roads and  factories,  40,  180,  199, 
362  ;  by  protection,  325,  332, 
362,  366,  390,  411  ;  in  overpro- 
duction, 19,  182  ;  in  railroad  com- 
petition, 191,  198  ;  increase  of 
wealth  by  foreign  trade,  242,  253, 
258,  284,  293,  314 
Webb,  Sidney  and  Beatrice,  22,  188, 

367 
Wells,  D.  A.,  411 
Weyl,  W.  E.,  47 
Whisky  trusts,  25,  175,  182 
Wilson   tariff  law,    307,    395,   398, 

399,  401,  403 
Wright,  C.  D.,  229,  236,  246,  259, 
261,  262,  264,  265 

yOUNG,  J.  P.,  327,  329,  332 


The  Control  of  Trusts 

An  Afgoment  in  Favor  of  Curbing  the  Power  of  Monopoly  by  a 
Natural  Method.  By  John  Bates  Clark,  Professor  in  Columbia 
University,  Author  of  "The  Philosophy  of  Wealth,"  "The  Distribu- 
tion of  Wealth,"  etc.  Cloth.     i2mo.     60  cents  wf/. 

It  aims  to  avoid  duplicating  work  that  has  been  done  by  Professor  Jenks,  Professor 
Ely,  Professor  Von  Halle  and  others.  It  gives  no  statistics,  no  description  of  the  va- 
rious forms  which  trusts  take  in  America  and  elsewhere,  and  no  history  of  the  develop- 
ment of  those  organizations  in  America.  The  work  is  argumentative  and  advocates  a 
particular  policy  that,  while  quite  conservative,  would,  as  the  author  maintains,  be  so 
effective  as,  on  the  one  hand,  to  excite  vigorous  opposition  before  it  can  be  adopted  by 
the  government,  and  on  the  other  hand,  to  meet  the  popular  demand  after  it  shall  be 
adopted.  It  is  a  policy  that,  as  is  claimed,  has  the  power  to  insure  to  American  indus- 
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— Financial  Review. 

"  Professor  Clark's  little  book  is  the  best  statement  in  small  compass  of  the  trust 
problem  that  we  have  yet  seen.  He  accepts  the  trust  as  an  inevitable  factor  in  economic 
progress  and  decries  the  attempt  to  legislate  it  out  of  existence  by  summary  laws.  The 
remedy  for  the  evils  that  attend  the  concentration  of  power  and  capital  in  a  few  hands  is 
to  be  found  in  the  retention  of  the  principle  of  competition  and  the  suppression  of  illegal 
and  predatory  methods  on  the  part  of  the  trusts.  Regulative  rather  than  drastic  legisla- 
tion is  needed." — Public  Opinion. 


Monopolies  and  Trusts 


By  Richard  T.  Ely,  Ph.D.,  LL.D.,  Director  of  the  School  of  Eco- 
nomics and  Political  Science  and  Professor  of  Political  Economy  at  the 
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— Prof.  Charles  A.  Bullock,  \nt\ii  American  Journal  0/ Sociology. 

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run." — John  B.  Clark,  in  The  Political  Science  Quarterly. 

' '  His  criticism  of  the  modern  development  of  the  theory  of  rent  is  ex- 
tremely clever  and  his  own  statement  of  it  clear  and  well  reasoned." — 
T/ie  Nation. 

Economic  Crises 

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Essays  on  the  Monetary  History  of  the 
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Economy,  Williams  College.     i2mo.    Half  Leather.    $1.25  «<?/. 

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immemorially  favored  by  the  poorer  classes  and  the  rural  districts 

But  over  against  this  defect,  which  will  be  felt  only  by  believers  in  bimet- 
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to  the  strength  of  the  author's  sympathies."  —  The   Outlook. 


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The  Anthracite  Coal  Industry 

A  Study  of  the  Economic  Conditions  and  Rela- 
tions of  the  Co-operative  Forces  in  the  Devel- 
opment of  the  Anthracite  Coal  Industry  of 
Pennsylvania. 

By  Peter  Roberts,  Ph.D.,  with  an  introduction  by 
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Social  Science  in  Yale  University.  With  Maps, 
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to  cover  the  great  subject  of  the  anthracite  coal  industry  in 
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both  scholarly  and  practical.  Professor  Sumner  has  pointed 
out  in  his  Introduction  that  there  is  no  other  industry  which 
seems  to  affect  the  interest  of  so  many  classes  of  people  as 
the  mining  of  anthracite  coal — the  staple  fuel  for  household 
use.  The  amount  of  supply,  the  length  of  time  before  it 
will  be  exhausted,  the  methods  of  working  and  shipping  are 
all  matters  of  vital  interest,  not  only  to  the  mine  owner  and 
capitalist,  but  to  the  general  public.  Perhaps  no  industry 
has  brought  out  so  many  and  so  various  experiments  in  the 
organization  of  labor,  improvement  of  methods,  both  of 
raining  and  transportation,  care  of  the  destitute,  etc. 


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